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CEE Biweekly

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The Georgia conflict and its likely economic impact

Thu, Sep 11 2008, 14:56 GMT
by Yapi Kredi Bank Economic Research Department

Yapi Kredi Bank

Contents

• 3 Key Economic News
  
• 6 Feature
  
• 6 The Georgia conflict and its likely economic impact
  
• 8 Country Monitoring
  
• 8 Ukraine
  
• 9 Tables
  
• 9 Two-week market movers and risk factors
  
• 10 Interest and exchange rates
  
• 10 Ratings 10 5Y-CDS
  
• 11 Monthly indicators
  
• 11 Quarterly GDP
  
• 12 Main indicators

Key Economics News

Bulgaria – Industrial production in July grew 3.3 % yoy, declining for a third consecutive month on the back of a drop in activity in the mining and electricity, heating, gas and water sectors. Industrial sales growth also slowed to 3.3 % in July on an annual basis down from a 5.0 % rise a month earlier. Despite the favorable base effect, inflation decreased only marginally in July (14.5 %) compared with June (15.3 %) when CPI accelerated to its highest level since the start of the transition. Retail sales climbed by 6.0 % yoy in July broadly in line with the performance in May and June, but in contrast to the double digit growth posted in the first four months of 2008.

Czech Republic – The recent soft GDP, industrial output and retail sales data suggest that the domestic economy will probably not remain immune to the global slowdown. In addition, faltering demand in the eurozone, high domestic inflation and the impact of a strong CZK will likely take their toll on GDP growth this year and next more heavily than we previously thought. Only the trade balance has shown a surprising resilience so far, but this was primarily due to weakening imports rather than steady export activity. On the interest rate front, we do not expect the CNB to continue its loosening policy after the August quarter- point cut, which brought the benchmark repo rate to 3.50 %. The main reason behind our belief is the sharp correction of the CZK/EUR, which could slow the predicted fall in inflation for the final months of this year.

Estonia – Estonia is the second EU-country after Denmark to slide into recession. Real GDP contracted by 1.1 % yoy in Q2 2008 after a marginal growth of 0.2 % yoy in Q1 (according to preliminary estimates, made for the first time after Statistics Estonia switched to the chainlinking methodology, which uses previous year’s prices instead of base year prices for deflating; past real GDP data also changed; nominal data were also revised). Real GDP decreased by 0.8 % qoq seasonally and working-day adjusted (after certainly negative qoq growth also in Q1). Domestic demand contracted by 2.8 % yoy as private consumption fell by 2.0 % due to weak spending on transportation, clothing and food. Gross fixed capital formation decreased by 2.5 % because of lower investment by households and the financial sector.With domestic demand contracting even more than we expected and the external environment providing little support, we reduce our forecast for real GDP growth in 2008 further from 0.1 % to –1.2 %.

Hungary – Hungarian GDP rose by 2.0 % yoy in Q2 2008 following 1.7 % growth in Q1. Although the acceleration is welcomed, its extent fell below expectations (2.4 %). Significant change took place in GDP components as main drivers for economic growth. In Q2 private consumption increased by 1.2 % yoy thereby providing major support for recovery and public consumption also recorded a minor gain of 0.5 % yoy. Gross fixed capital formation continued to decline (–2.2 % yoy). On the other hand, the export performance suffered from weakening external demand, especially from Germany, whereas the appreciating HUF and accelerating domestic consumption favoured imports steady rise. All in all, rebounding domestic demand ran ahead of net exports in the role of stimulating economic growth. Over the last couple of months CPI remained high, both June and July inflation were 6.7 % despite definite easing inflationary pressures in the form of slowly decelerating agriculture and industrial prices. The HUF has been reaching new heights against the Euro in recent months and this will probably help the CPI to embark upon a more descending trend. Nevertheless, as the National Bank is still not convinced of the current path of inflation, the Monetary Council is very likely to leave the actual 8.5 % base rate unchanged at least until late autumn.

Latvia – According to recently revised figures, Latvian GDP almost stagnated in Q2 2008, growing by a marginal 0.1 % yoy – down from a 3.3 % yoy increase posted in the previous three months. The economy is losing steam as lenders tighten credit and the inflation rate dampens consumer spending. In August, CPI inflation fell to 15.7 % yoy, the lowest level in seven months, on the back of decreasing pressures from food and oil prices. The Latvian economy may further contract through the rest of the year as already signaled by falling industrial production and retail sales, ending the full year with real GDP growth of 0.5 % compared to 10.3 % posted in 2007.

Lithuania – Economic growth slowed to 5.3 % in the second quarter of this year, the slowest pace in more than six years, on the combined effect of weaker external demand, high inflation, low consumer confidence and tighter credit conditions. Still, growth remains considerably faster than in neighboring Latvia (0.1 %) and Estonia (–1.1 %). In the meantime, Lithuanian inflation slowed for the second consecutive month in August, to 12 % from 12.2 % in July and 12.5 % in June. Despite a peak probably already having been reached, inflation in Lithuania is still three times faster than that of the EMU area.

Poland – Poland remained one of the fastest growing economies among European Union countries in H1 2008 with GDP growth at 5.9 % yoy. In terms of GDP breakdown, investment showed a substantial increase of 15.2 % yoy. Individual consumption rose by 5.6 % yoy, but growth was flat compared to Q1.We predict GDP will continue its gradual decrease in H2 2008. For full-year 2008 we expect GDP growth of 5.2 % yoy, while in 2009 it will slow to 4.2 % yoy. The economy’s expansion will be mainly driven by investment and private consumption, propelled by a tightening labour market. Inflation is still a significant threat.We expect it to reach the level of 5 % in August due to a base effect and we predict inflation will average 4.4 % in 2008 as a whole. The MPC keeps its tightening bias due to worryingly high inflation rates. Both the headline CPI, well above the NBP’s target 2.5 % +/–1pp, and growing net core CPI are still strong arguments for further monetary tightening. However, in our opinion, the monetary tightening cycle is coming to an end.We think that the October inflation projection will be crucial for the MPC.

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Published on  Thu, Sep 11 2008, 14:56 GMT

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CEE Biweekly

Wed, Jul 2 2008, 15:36 GMT
by Yapi Kredi Bank Economic Research Department

Yapi Kredi Bank

In this issue

• Key Economic News
• Tables
• Two-week market movers and risk factors
• Interest and exchange rates
• Ratings
• Monthly indicators
• Quarterly GDP
• Main indicators

Key Economics News

Bulgaria – The National Revenue Agency announced that despite the replacement of progressive scale of taxation with a single 10 % flat tax rate on personal incomes, revenues realised in the Jan–May period increased by 17.6 % to BGN 800 mn. Likewise, cutting the corporate tax rate to 10 % boosted fiscal revenues collection by 31.2 % to BGN 1,309 mn. End May data for the performance of the consolidated fiscal program in Bulgaria is due to be released in early July. The Central Bank revised upward its year-end inflation projection to 7.9 % (from 6.4 % previously) citing increasing pressure stemming from higher prices of primary energy resources. In May credit growth to non-financial institutions slowed to 55.5 % yoy after increasing by 63.6 % for full-year 2007.

Czech Republic – Despite mounting inflation pressures, the CNB kept interest rates unchanged at its June meeting, with the benchmark 2-week repo remaining at a six-year high of 3.75 %. The key argument against policy tightening proved to be the crown’s rapid appreciation which has now amounted to 17 % yoy against the euro and 29 % yoy versus the dollar. Governor Tuma said after the meeting that anti-inflation factors are too strong to allow the bank to hike rates although he sees the overall risks as slightly pro-inflationary.We do not expect these anti-inflation risks to ease substantially by early August when the CNB meets again. For this reason, we assume the most likely outcome will be no change in the interest rate. However, with the ECB now ready to hike this week and with chances diminishing that domestic inflation will quickly drop within the CNB’s target, we have shifted our rate hike expectation to this year’s Q4 from Q1 2009. In line with this, we forecast CPI to increase in June, to 6.9 % yoy from May’s 6.8 % yoy, with housing rents, fuel and cigarettes prices as the major drivers.

Estonia – The parliament amended the budget law (negative supplementary budget in Estonian language) on 19 June. It cut budgeted revenues by EEK 6.1 bn (EUR 0.39 mn, 1.2 % of GDP) from the original target of EEK 96.3 bn and expenditures by EEK 3.2 bn from EEK 93.6 bn. The extra budget was passed by the 101-seat chamber with 57 to 34 votes. The decrease is triggered by lower than expected tax collection, notably the social tax and VAT because of slack economic growth. Current expenditures will be cut by 7 % on average. In addition, about EEK 0.7 bn (out of the EEK 3.2 bn) lower in allocations to the Health Insurance Fund and the second pillar of the pension system will be made. The latter cuts will not, however, immediately result in a decrease of pensions or health spending. The negative growth effect will be mitigated by allowing a budget deficit this year.We expect the GDP to grow some 2 % in 2008.

Hungary – In line with other Central European currencies, the Forint appreciated in recent months – by 7 % from early May – and on 20 June broke through the psychological level of 240 HUF/EUR, the strong end of the NBH’s former official intervention band. This appreciation was mainly supported by the recent interest rates hikes by the central bank. However, we believe that in an uncertain global financial climate the currency still remains volatile. In any event, the rapid appreciation of the Forint against the Euro, together with weak retail figures and only slowly improving employment and purchasing power, served as arguments for the Monetary Council of the National Bank of Hungary to leave the base rate at 8.5 % at its 23 June meeting. Q1 current account deficit rose by 4.4 % yoy, to EUR 1.16 bn as the EUR 428 mn improvement in the balance of external trade and services was impaired by the EUR 477 mn deterioration in income and current transfers.

Latvia – In May, Latvian retail sales fell by an annual 5.5 % (unadjusted), representing the biggest decline in more than six years, as domestic demand cools down. Sale of food products registered the biggest drop (down by 5.6 % yoy) due to tightening lending conditions and an eroded consumer purchasing power resulting from CPI inflation still in the double-digits area. At the same time, sales of non-food products also fell by 5.4 % yoy. Producer prices grew by 1.3 % in May compared to the previous month (11.9 % yoy) mainly on the back of the increasing cost of electricity and natural gas prices.

Lithuania – The Lithuanian economy grew by 7 % in the first quarter of this year, according to the final revision made by the Institute of Statistics. The figure compares with a previous estimate of 6.9 % and, despite being relatively good, represents a significant slowdown if compared with the previous two quarters (+8 % in Q4 2007 and 10.8 % in Q3). However, growth drivers have held. The GDP composition in the first quarter saw an acceleration in both households’ consumption (+12.2 % from 9.4 %) and corporate investment (+22.4 % from 6.9 %), but was dragged down by the strong pace of imports.

Poland – Poland’s Monetary Policy Council (MPC) announced a 25 bps hike during its June rate-setting meeting, for the eighth time since the start of the monetary policy tightening cycle, increasing the reference rate to 6.00 %.

The MPC highlighted its new inflation and GDP projections. Using the assumption of constant interest rates, the headline CPI remains above the NBP’s top target of 3.5 % for 2010. The risks on the inflation path mentioned in the Report on Inflation are clearly on the upside, especially taking into account food prices and net core inflation forecasts. The Central Projection assumes that food prices will decline by 1.9 % yoy on average in 2010 after increasing by 6.3 % yoy in 2008 and by 1.6 % yoy in 2009. Moreover, the estimated growth rates on a “new” measure of core inflation (headline excluding prices of energy and food) are 4.0 % for 2009 and 3.8 % for 2010. These numbers are clearly hawkish, provided that the MPC members regard these projections as meaningful.

The new GDP forecast is slightly lower than February’s projection. The central bank expects GDP growth at 4.7 % for 2008, 4.8 % for 2009 and at 5.2 % for 2010. Taking into account the Q1 GDP breakdown and recent macroeconomic data, we believe that the NBP’s prediction for this year’s economic activity is pessimistic, thus our expectation of 5.2 % yoy for 2008 is rather cautious – the market consensus and Ministry of Finance estimations stand at 5.5 %. Summing up, based on the June inflation projection we think that the probability of further rate hikes is increasing significantly. A factor that will now attract more attention will be food prices, as the entire long-term optimism of the projection relies on these numbers.

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Published on  Wed, Jul 2 2008, 15:36 GMT

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CEE Biweekly

Wed, Jun 18 2008, 15:01 GMT
by Yapi Kredi Bank Economic Research Department

Yapi Kredi Bank

This issue includes:

• - key economic news
• - a country monitoring about Romania and Slovakia
• - tables with two-week market movers and risk factors, interest and exchange rates, ratings, monthly indicators. Quarterly GDP and Main indicators

Key Economics News

Bulgaria – Bulgarian GDP grew by a real 7 % yoy in Q1 2008, broadly in line with the 6.9 % yoy growth reported in Q4 2007. The pace of economic expansion was above consensus forecast (5.7 %) and drew support from the combination of buoyant domestic demand and strengthening of export growth. On the negative side CPI, according to the national methodology, accelerated further in May to 15 % yoy and apparently will increase even further in the months to come before any price moderation starts to take place. Following a sizeable one-off drop in March, industrial output and sales grew by 8.4 % and 8.8 % on a yearly basis in April. Surging energy costs and a weaker services balance contributed to the deterioration of April’s CA balance to Euro 680 mn, compared to a Euro 552 mn deficit posted one year ago.

Czech Republic – GDP growth slowed to a seasonally adjusted 5.3 % yoy (5.2 % yoy unadjusted) in Q1 from 6.3 % yoy in Q4, but diverted marginally from the flash Q1 estimate of 5.4 % yoy. The growth structure showed that the slowdown was led by household consumption, whose growth in real terms was largely affected by the inflation surge. With government spending and fixed investment also experiencing a marked pullback from the previous quarter, inventories and net exports kept the GDP growth above 5 % yoy. Our new 2008 growth forecast stands at 4.3 % yoy (up from the previous 4.0 % yoy), with easing demand from the EU and sharp CZK appreciation starting to take their toll on net export growth in H2.

Inflation, both at the consumer and producer level, surprised on the upside in May, adding to CNB worries that the assumed drop in yoy CPI towards the year-end will be slower than forecast. In fact, it looks highly likely now that the CPI will return back to 7 % yoy in the summer months. April reports on foreign trade and industry proved that the weakness seen in March was mainly caused by seasonal factors, with both exports and industrial production again posting double-digit growth rates. If it were not for the latest CZK jump, we would expect the CNB to deliver an additional interest rate hike soon.

Estonia – The slump in economic growth (to a revised 0.1 % yoy in Q1 2008) is due to slackening domestic demand. Private consumption declined by 0.4 % yoy in Q1. Value added decreased in trade, transportation and real estate activities. Value-added growth decelerated in manufacturing, construction and, particularly strongly, in financial intermediation.

Estonia’s current account deficit has begun to improve on declining imports. It narrowed to EUR 661 mn in Jan–April 2008 from EUR 1,043 mn in Jan–April 2007. Imports were 1.9 % lower than the year before in euro terms as exports increased by 8.3 %. At the same time, FDI proved rather resilient and was at EUR 682 mn even EUR 40 mn higher than the previous year. The global liquidity crisis manifested itself mainly by the outflow of EUR 1,079 mn in short-term bank debt, compared with an inflow of EUR 618 mn in Jan-April 2007. This was however offset by higher long-term inflows (EUR 1,488 mn). The relatively robust long-term capital flows will likely combine with a rather flexible reaction of the Estonian economy to re-accelerate economic growth already next year, at least if the Scandinavian countries, Estonia’s main economic partners, avoid a severe slowdown.

Hungary – Contrary to all expectations, instead of continuing to decline, the twelve month CPI picked up to 7 % yoy in May from 6.6 % in April. The mom rate indicated a 1.1 % price increase, up from the 0.3 % in the previous month. Inflation driving factors were again the soaring prices of food and oil dependant goods and services, such as household energy, transportation and catering. Food has become 14 % more expensive since May 2007 and accounted for a 2.2 % price increase for just one month alone. The only hope on the horizon for some degree of easing in food prices lies in the recently published agriculture price index that indicated a 2.3 % decrease in April mom, sharply down from the 4.2 % mom hike in March. Domestic prices of fuel have increased by 16.1 % yoy and 3.2 % mom and are expected to rise further during the coming months. In view of the May CPI we have revised our forecast on average inflation upward to 6.7 % from 6.2 % for 2008, and to 6.0 % from 5.1 % the year end figure. In addition, we expect the National Bank to implement an additional 25 basis point rate hike at the forthcoming MC meeting.

Latvia – In May Latvian CPI inflation jumped to 17.9 % yoy (0.9 % mom) from 17.5 % in April. This increase was mainly the result of an increase in food prices (21.6 %), transport (12.3 %) and gas costs (4.4 %). Growth in prices remained the highest among the 27-nation European Union, while the economy expanded by a revised 3.3 % yoy in Q1, compared to 8.1 % posted in Q4 2007. On the positive side, industrial output in April recovered compared to March rising by 4.4 %, driven by evolving volumes in manufacturing, electricity, gas and water supply. In April Latvia’s CA posted a deficit of 227.1 mn Lats (EUR 0.3 bn) down by almost 18 % yoy on the back of cooling domestic demand resulting from ongoing tightening in lending conditions.

Lithuania – CPI inflation increased by 0.8 % mom in May, totaling +12 % on a yoy basis, the highest level in more than a decade. Food, transport (+18 % yoy), utilities (+18.6 %) and transport (+15.6 %) were the main drivers.

The current account balance deficit narrowed in April, thanks to faster export growth (both exports and imports continue to grow rapidly), to EUR 350 mn from EUR 400 mn a month earlier. However, in the first four months of the year the deficit totaled EUR 1.38 bn, 16 % higher than one year before.

Poland – As expected May CPI accelerated to 4.4 % yoy, up from 4.0 % yoy a month earlier due to a rise in regulated prices. Prices in the category “housing, water, electricity, gas and other fuels” (19 % of the CPI basket) increased by 1.6 % mom (9.0 % yoy), on the back of increases in gas and electricity prices. At the same time food prices rose by 1.2 % mom (7.0 % yoy), while fuel prices went up by 2.6 % mom (7.0 % yoy). The May CPI numbers remain consistent with the scenario of further CPI growth to ca 5.0 % yoy in August and then to fall toward year-end to 4.2 % yoy. On the other hand wages growth slightly slowed to 10.5 % yoy in May, down from 12.6 % yoy in April. A weaker wages dynamic does not change interest rate expectations. Supported by the MPC members we continue to expect the Council to hike rates this month. It is worth noting that the majority of the MPC members pointed out that the new inflation projection shows a slightly worse inflationary path than the one released in February.

Poland’s government approved the 2009 budget guidelines based on economic growth of 5 % and the average inflation rate at 2.9 %. The central budget deficit is set to narrow to PLN 18.2 bn from PLN 18 – 24 bn estimated by the Ministry of Finance at the end of this year. The government assumes that 2009 budget revenues (including the EU funds) will amount to PLN 310.5 bn (increase by 10.2 % in nominal terms compared with 2008), while expenditure will reach the level of PLN 328.7 bn (increase by 6.4 %). The 2009 central budget gap will amount to 1.3 % of GDP as assumed in the updated convergence programme issued earlier this year. The macro assumptions are more optimistic than ours (we look for 4.4 % GDP growth), but still within the realistic boundaries. The biggest risk is that revenue forecasts may be a bit on the optimistic side, all the more that this year’s revenue performance is not as good as it should be given strong growth and high inflation, and this year’s planned performance will be the basis for next year’s forecast.

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Published on  Wed, Jun 18 2008, 15:01 GMT

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CEE Biweekly

Wed, Jun 4 2008, 15:17 GMT
by Yapi Kredi Bank Economic Research Department

Yapi Kredi Bank

This issue includes:

• - key economic news
• - a country monitoring about Romania and Slovakia
  
• - tables with two-week market movers and risk factors, interest and exchange rates, ratings and monthly indicators.

Romania

GDP growth surprised on the upside in Q1 2008

Romania’s real GDP growth accelerated to 8.2 % yoy in Q1 from 6.6 % in Q4 2007, thus reinforcing concerns about risks of possible economic overheating and persistently high inflationary pressures. Although the GDP breakdown has not yet been released, we anticipate lively consumption and booming investments to have remained the main contributors to this outstrip growth. The National Statistics Office has published the figures for domestic investment which rose by 35.2 % yoy in Q1 2008. While the surge in investment in new construction works was already anticipated (33.1 % yoy) due to a booming construction sector, the investment in equipment, including transport means proved to be very strong as well, rising by 35.4 % yoy in Q1. Moreover, the structure of investment among the main sectors of the economy remains well-balanced. Most of the funds were allocated to the industry (38.7 %) and trade sectors (23.5 %) which together account for 62 % of total investment. Agriculture also benefited from buoyant investment activity, accounting for 9.4 % of total investment.

Local elections results

Local elections were held on 1 June and will be followed by the second ballot on 15 June. The partial results of the first ballot showed that President Basescu’s newly-formed Democratic-Liberal Party (DLP), the leftist Social Democratic Party and the Prime-Minister’s ruling party NLP are the parties that will compete for the city hall and the county council seats in the second round. Although the DLP was believed to stand the strongest chance of winning the seats, both the SDP and NLP manage to regain power in the last months. DLP received most of the votes for the chairmanship of county councils, while SDP won the most votes for the city halls and local councils. In Bucharest, preliminary results place the independent candidate and former member of the SDP Sorin Oprescu in first place with 30.5 % of the votes, followed by the DPL’s Vasile Blaga with 27.2 %. Although initially renegade, after the results were published, the SDP confirmed its support for Oprescu for the city hall. As regards the elections for the General Council of the City of Bucharest, the partial results showed that the DLP obtained 33.6 % of the votes cast, SDP 26 % and NLP 10.9 %.

Slovakia

Central Parity

The central parity of the Slovak Koruna toward the Euro was revaluated on 28th May for the second time during the presence of Koruna in the ERM II. The new level of the central parity was set at the level of SKK/EUR 30.1260, i.e. at the bottom level of the original fluctuation range. The new fluctuation range where the Koruna exchange rate can move was determined at SKK/EUR 25.6071–34.6449. Slovakia thereby created two new precedents: it was the first country in history to revaluate the central parity twice and, at the same time, the last central parity was set at a level at which the exchange rate has never been in history.

The new central parity also reflects the long declared efforts for strong conversion presented mainly by Prime Minister Robert Fico. Revaluation of the central parity was enabled mainly by favourable development of economy. According to comments by the NBS, the main factor which initiated the change of the parity was “an ongoing real convergence of Slovak economy supported by significant GDP growth and differential in the development of labour productivity, in comparison with average values being achieved within the European Union.” However the change was supported also by a strengthening Koruna: “The change was supported also by permanent and growing deviation of nominal exchange rate from the central parity, which was determined in March 2007, as well as development of exchange rate of Slovak Koruna in the last period.”

We expect that the final conversion rate will be set at the current level of the central parity on 8 July. So far in the history, the conversion rate has been determined at the level of current parity in all countries adopting the Euro, therefore we think the European institutions will stick to this level while not creating a further precedent in determination of conversion rate. Indeed, a different choice would be connected with some reputational risk for the European institutions, as by that they would completely deny the foundation of the criterion of exchange rate stability. Moreover, we consider the current level of central parity to be very favourable from many aspects (for Slovakia). It is important for competitiveness of the economy that the new parity was determined close to the expected level of the balanced exchange rate in the next year, i.e. it should not significantly endanger domestic exporters. On the other hand, for citizens, a stronger exchange rate could mean moderation of inflation pressures after accession to the Eurozone. Moreover, a level close to the rounded limit of SKK/EUR 30 will allow easier translation of Koruna to Euro and thereby also better control of potentially unjustified price growth on the account of Euro introduction.

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Published on  Wed, Jun 4 2008, 15:17 GMT

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Some slowdown, but economic growth still sound

Thu, May 29 2008, 08:02 GMT
by Yapi Kredi Bank Economic Research Department

Yapi Kredi Bank

This issue includes:

• - key economic news
• - a feature on financial markets
• - a country monitoring about Turkey
• - tables with two-week market movers and risk factors, nterest and exchange rates, ratings and monthly indicators.
  

Preliminary GDP data for Q1 2008 have been released by the statistical offices of Slovakia, Czech Republic, Hungary and the Baltic countries last week, anticipating, from one side, and confirming, from the other, our original prediction of a slowdown in economic growth in the Central and Eastern Europe (CEE) region as a whole in 2008.

However, as indicated by recently released GDP data of some Western Europe countries – particularly Germany and France, which recorded better than expected economic growth in Q1 2008 – the CEE region also is maintaining sound economic growth, proving to be not yet directly influenced by the US slowdown.

It is worthwhile, however, to make a distinction among countries. If on the one hand Central Europe countries – Slovakia, Czech Republic and Hungary – surprised on the upside, with GDP growth in Q1 proving to be higher than the market’s and/or our expectations, on the other hand the Baltic economies, in particular Estonia and Latvia, recorded a marked slowdown.

The Slovak economy turned out to be the fastest growing economy, not only among the CEE countries, but also in the European Union, expanding by 8.7 % yoy (which was above the market expectation of 8.5 % and our original forecast of 7.5 %). The Statistical Office will publish the structure of growth on June 3rd. In addition to the usual positive contribution from net exports, however, households consumption is assumed to have been the key driver of this dynamic (also taking into account the record growth in retail sales in the first quarter).

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Published on  Thu, May 29 2008, 08:02 GMT

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Financial markets have been sensitive with any domestic news

Fri, Apr 4 2008, 08:29 GMT
by Yapi Kredi Bank Economic Research Department

Yapi Kredi Bank

This issue includes:

• - key economic news
• - a feature on financial markets
• - a special focus on automotive industry
• - a country monitoring about Turkey
• - data and forecast at country and regional level

Financial markets have remained very volatile in recent weeks, amid concerns about the US and world economy and the news regarding some banking institutions. However, despite substantial losses in the stock markets both internationally and in the CEE countries, the deterioration in the country risk during the month of March - in terms of credit default swap (CDS) - was relatively limited in most of the CEE economies, with some exceptions. Indeed financial markets are discriminating more than before among different countries, and are particularly sensitive to any bad news originating from the domestic level.

The automotive industry in CEE is still operating at high speed: almost 6.2 mn passenger cars and commercial vehicles were produced in the region during 2007, according to figures recently released by OICA. Production in CEE grew by 18.7% in 2007, much higher than the world average of 5.5%. The CEE region produces now more than one fourth of the vehicles produced in Europe.

CEE countries: year to date stock market performance

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Published on  Fri, Apr 4 2008, 08:29 GMT

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Political changes

Thu, Mar 13 2008, 14:36 GMT
by Yapi Kredi Bank Economic Research Department

Yapi Kredi Bank

This issue includes:

• Key economic news for all of countries
  
• Country monitoring focusing
• Data and forecast at country and regional level

Hungary: Over 82 % of voters that turned out for the referendum held on 9 March voted for the abolition of the doctor’s appointment fee, daily hospitalisation fee and the tuition fee. On the whole, the results are a clear victory for the opposition party FIDESZ and a setback for the government and its reform process. The official referendum’s results will however be announced on March 14, the day before Hungary’s national holiday (the Anniversary of the Revolution), when demonstrations could occur. As a consequence, popular unrest and a government reshuffle are possible but a deep government crisis is unlikely.

Kosovo: On February 17, 2008, following the failure of two years of internationally mediated talks on the UN-administered territory’s future, Kosovo unilaterally declared its independence, becoming the seventh state to emerge from former Yugoslavia. It was soon recognised as a sovereign state by the United States and major EU countries1 despite the fierce resistance of Serbia, backed by Russia2.

Rusia: On March 2, 2008, Dmitry Medvedev won Russia’s presidential election with 70.28 % of votes. Communist Party chief Zyuganov won 17.72 %, while ultranationalist Zhirinovsky had 9.35 % of votes. Medvedev’s landslide victory was assured by Putin’s blessing in December 2007, when Putin announced him as his successor, while promising also to become Russia’s next Prime Minister.

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Published on  Thu, Mar 13 2008, 14:36 GMT

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CEE Biweekly

Mon, Dec 24 2007, 16:43 GMT
by Yapi Kredi Bank Economic Research Department

Yapi Kredi Bank

This issue includes:

• Key economic news
• A country monitoring focusing on Slovakia, Turley, and Ukraine
• Data and forecast at country and regional level

Slovakia is making the necessary preparations for the introduction of the Euro at the beginning of 2009. We are optimistic that in the official evaluation period next spring Slovakia will fulfil all criteria for EMU entry.

In Turkey GDP grew by a surprisingly low 1.5% yoy in the third quarter of 2007. Although inflation was 8.4% in November and therefore missed the inflation target of the central bank, further interest rate cuts are expected in the first quarter of 2008.

On December 18 Yulia Tymoshenko was appointed as prime minister. Nevertheless, the political situation in Ukraine will remain shaky. On the economic side we expect GDP growth to slow to 5% and inflation to increase to 13.6% in 2008.

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Published on  Mon, Dec 24 2007, 16:43 GMT