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Funding worries for the 'good guys'?
Fri, Aug 15 2008, 15:28 GMT
by Danske Research Team
Poland and the Czech Republic have stood out positively in Central and Eastern Europe in so far as - unlike most other countries in the region - neither has had a major current account deficit. However, the trend in the current account deficit in the two countries has unfortunately developed negatively in recent months. Also, more worryingly we see signs that the funding of the current account deficits is coming under pressure. Numbers released this week have confirmed the adverse trend in the current account deficit in both the Czech Republic and Poland. So, the current account deficit in Poland widened to EUR 2.3bn in June from EUR 1.7bn in May. Similarly, the Czech current account deficit jumped to CZK 27.0bn in June from CZK 11.7bn in May.
The respective increases in the current account deficits of these countries were driven by different factors. So, in Poland the worsening of the current account situation was mainly due to strong import growth and a slowdown in exports while the deterioration of the Czech current account deficit was largely attributable to strong dividend outflows. However, even though the key factors behind the current account worsening were different in Poland and the Czech Republic the underlining trend in both countries is basically driven by the same factors - still relatively strong domestic demand and a slowdown in exports mainly to the euro area. Looking ahead we expect the current account situation to worsen even further in both the Czech Republic and Poland in the coming months due to the continued slowdown in the euro area. That said, we also expect domestic demand to slow in the Czech Republic and Poland which should in part limit the deterioration in the current account situation in both countries. The increasing weakness of the current account situation in both countries is likely to weigh on the Czech koruna and Polish zloty so consequently we expect CZK and PLN depreciation to continue in the coming months.
Published on Fri, Aug 15 2008, 15:30 GMT
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