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Propelled by domestic demand, Czech economy booms

Polish consumer prices stayed likely flat in September

Yesterday, only 25.25 billion HUF’s offer arrived for the 20 billion HUF’s 3 month Treasury bill on bond auction of the Hungarian Government debt Management Agency. According to our assumption it is driven by to the fact that banks are required to get rid-off riskier assets at the end of the year and since Hungary’s rating is still not offered for investments therefore banks try to moderate purchase of securities which expire at the beginning of next year. On the other hand, yields hit such low level that it is uncertain if these were attractive for foreign investors.

The Czech economy was growing faster in the second quarter this year than preliminary data indicated. According to a revision published today by the Czech Statistical Office, GDP jumped up 1.1% quarter-on-quarter and 4.6% year-on-year. The accelerating growth was driven by domestic demand as households’ consumption rose by 3.1% y/y and fixed investments increased by 7.3% y/y. We believe that the Czech economic growth has maintained momentum also in the third quarter; hence our GDP growth projection stands at 4.3% y/y. Obviously, the Czech domestic demand has been supported by strong monetary expansion as the Czech National Bank accommodates ECB’s relaxed policy through quasi-fixed exchange rate regime. In this respect, today’s release of M2 growth in August it is worth noting, showing robust credit growth of 7.9% y/y (see the chart below).

European Economic Review

Later today, the Polish Statistical Office will release the first (ever) flash estimate of headline inflation. We expect the aggregate CPI index to be flat in September, while dropping 0.6% year-on-year. Since the market thinks that the CPI declined 0.7% y/y in September, we believe that a notch higher actual inflation could calm down rate cut bets, which have been partly priced in the front end of the yield curve.

















Currencies% chng
EUR/CZK27.19-0.2
EUR/HUF313.4-0.5
EUR/PLN4.24-0.1
EUR/USD1.120.0
EUR/CHF1.09-0.2















FRA 3x6%bps chng
CZK0.260
HUF1.330
PLN1.69-1
EUR-0.05-2















GB%bps chng
Czech Rep. 10Y0.69-5
Hungary 10Y3.33-6
Poland 10Y2.842
Slovakia 10Y0.88-1















CDS 5Y%bps chng
Czech Rep.512
Hungary1686
Poland760
Slovakia522

This non-exhaustive information is based on short-term forecasts for expected developments on the financial markets. KBC Bank cannot guarantee that these forecasts will materialize and cannot be held liable in any way for direct or consequential loss arising from any use of this document or its content. The document is not intended as personalized investment advice and does not constitute a recommendation to buy, sell or hold investments described herein. Although information has been obtained from and is based upon sources KBC believes to be reliable, KBC does not guarantee the accuracy of this information, which may be incomplete or condensed. All opinions and estimates constitute a KBC judgment as of the data of the report and are subject to change without notice.

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