CEE Macroeconomic and Fixed Income Research

Analysts’ View:

CEE detailed 1Q15 GDP Releases: We will finally see the breakdown for detailed 1Q15 GDP numbers today in the Czech Republic, Hungary and Poland. Given the unexpectedly strong acceleration of Czech GDP growth to 3.9% y/y, according to the flash estimate, its first revision will most likely point to a lower rate of expansion (in CNB Governor Singer's view, even as much as a single percentage point in y/y terms). The release of the GDP breakdown should confirm the role of domestic demand (supported mainly by private consumption and investment) as the key driver of the growth on the demand side and manufacturing as the main booster out of all the branches. In Poland, flash GDP showed solid 3.5% growth dynamics and today’s breakdown should confirm that the growth was also driven by domestic demand there. We expect growth of private consumption to be close to 3% y/y in 1Q15 supported by improving labor market and positive effects of low level of commodities’ price. At the same time, investment growth may be even a double-digit number. Domestic demand should remain the pillar of the growth in the upcoming quarters as well and sustain economic growth at 3.5% y/y this year. Hungary seems to be an outlier in terms of investment growth as a report from the Statistical Office showed yesterday that the volume of investments fell by 4.5% y/y in 1Q15, while on a quarterly basis we saw a 1.1% decrease. The feeble first quarter performance was mainly due to the high basis, especially in government investments: the public sector saw a 10% drop in the volume of investments, while the private sector recorded only a 0.3% decline. Moreover, the construction of buildings fell 8.9%, while machinery investment decreased by 1.0%. The figure underpins our more conservative bias (we see growth at 2.5% for 2015), although upside risks definitely exist due to the still high EUfund inflow. In our view, instead of investments, private consumption may be the main driver of GDP growth in Hungary.

HR 1Q15 Flash GDP: The CBS will publish the 1Q GDP flash release today. We expect to see no major changes in the footprint, as the headline figure is expected to show a broadly flat y/y performance. While the detailed breakdown will be released the following week, short-term indicators suggest net exports maintaining a positive tone, while on the domestic demand side, we expect a more assured performance from the private consumption side, while investments are seen remaining a drag on the headline figure. In line with expectations of a flat 1Q GDP reading, we see FY15 GDP in the 0-0.5% range.

SI 1Q15 Flash GDP: Ahead of today’s 1Q GDP release, we see the economy extending its positive run at similar levels to those seen in previous quarters (i.e. 2.5% y/y), while also showing more balanced drivers behind the growth. While exports are seen remaining the core engine, we see support also finding its way through a more stabilized domestic demand footprint, with improved labor market conditions favoring the personal consumption outlook and investments keeping their healthy pace. We see the release as neutral to our capital market forecasts.

HU Bonds: Exceptionally high demand characterized the Hungarian bond auction yesterday. The Government Debt Management Agency (AKK) sold HUF 65.5bn in three-, five- and ten-year bonds, significantly above the HUF 47bn target. Bids from primary dealers were the highest for the 5-year bond, as the AKK accepted HUF 22.5bn from the HUF 101.3bn demanded and the average yield lowered to 2.88%, from the previous 3.19%. In the case of the 3- and 10-year bonds, average yields fell by 24-31bp compared to auctions held two weeks ago. Although it seems that Templeton Asset Management has started to slowly reduce its Hungarian holdings, the auction results show that investors are willing to buy bonds at current yield levels. In line with that, we do not expect difficulties in refinancing. We maintain our 10-year bond forecast at 3.6% in 2Q15 and at 4.0% in 4Q15.