Czech Republic
The rapid decline in exports persists; yet foreign trade remains in surplus.
Hungary
New PM candidate Mr Bajnai announced a large-scale austerity package
Poland
Zloty rallies on lower risk aversion
The week ahead
Czech and Hungarian inflation figures should show some rebound
Overview
G2O meeting brings some relief to Central Europe
Central European markets gave an obvious sigh of relief, due, somewhat paradoxically, to the outcome of the G20 meeting, becomes market expectations as to this meeting were very low indeed. The increase in IMF reserves by $750bn may primarily benefit the indebted countries of emerging markets, including a few Eastern European ones. The fact that the IMF will now have much greater power at hand has clearly increased investor confidence. There will be no threat that the Fund would not have a sufficient amount of money available to provide financial assistance to prevent a simultaneous collapse of multiple vulnerable currencies.
Looking at the fundamentals of Central European currencies, we clearly see that, above all, the Hungarian forint enjoyed this new environment. The currency strengthened significantly last week, and basically ignored the rating downgrades by the leading agencies, S&P and Moody’s. Of course, on should keep in mind that rating agencies’ actions usually come with great delays, and thus, regarding the forint, the warnings by S&P and Moody’s didn’t provide markets with new macroeconomic information. On the contrary, the pessimism of S&P and Moody’s about Hungary may be yet more evidence of how delayed the decisions of those institutions are, as they ignore the positive signals from the Hungarian political scene, i.e., Hungarian politicians’ determination to tackle the unfavourable fiscal situation.
