Czech Republic
Inflation to plummet
Hungary
Foreign trade swings into huge surplus
Poland
FinMin signals that the Zloty may enter the ERM2 in the 2nd half of this year
The week ahead
Hungarian and Polish inflation reading in focus
Overview
CE trade balances in surpluses despite deep recession
The trade balances of Central European countries are obviously improving. This is happening in spite of the fact that the export-oriented industry is continuing to fall rapidly. Except for the small car production sector, which may (until September?) benefit from the positive effects of the bonus for scrapping cars in Germany, we do not see any significant signs of recovery at the moment. Thus foreign trade is only improving due to the significant improvement of the terms of trade or, expressed in other words, owing to the decline in raw material prices by tens of percents.
However, not only the pure trade balances, but also the current accounts of Central European countries are improving. In addition to the improved parameters of foreign trade, Central European countries are successful in gaining funds from EU transfers (these also appear in the capital account) and, paradoxically, the recession is also helping those countries, by reducing the profits of large companies in Central Europe, which are mostly owned by foreign entities.
So, we see a surprising paradox: export-oriented Central European economies are able to improve their position even as the Western European economy is experiencing its worst recession since World War II. This is one of the main reasons why we continue to be optimistic about the zloty, forint, and the koruna in the medium term.
