GDP growth peaked in half of CEE countries in 4Q17

Did GDP growth peak in 4Q17 in your country?

Croatia: Following a somewhat disappointing 4Q17 GDP figure (2.0% y/y), we see room for some acceleration in 1Q18. We expect the headline figure to remain supported by the domestic demand outlook, i.e. a steady private consumption footprint and somewhat more supportive investment profile going into 2018. Net exports on average are anticipated to continue to weigh on the headline figure performance. On average, we expect GDP growth to remain in a similar gear to that seen in 2017, and hence keep our call for 2018 flat at 2.8% y/y.

Czech Republic: We expect GDP to arrive at 3.4% in 2018, from the 4.5% reached the previous year (5.2% in 4Q17). The slowdown will mainly be driven by higher interest rates and the koruna's strengthening; however, we do not see this as a negative development, but rather a gradual return to potential GDP growth from the current slightly overheated economy. The economic story will not change, in our view, with firm support from both domestic and foreign demand. In 1Q18, we expect GDP growth to arrive at 0.8% q/q and 4.3% y/y, as a reflection of the wage growth acceleration at the 2017/18 turn.

Hungary: Hungarian economic growth was exceptionally strong in 4Q17, as it reached 4.4% y/y. Without going deeply into the details, we must address the fact that government expenditures contributed to a great extent to the headline growth in 4Q17, which might be repeated in 1H18, but the effect of budgetary spending will most likely fade after the April parliamentary elections. Underlying economic activity should remain strong, as household consumption and gross fixed capital formation will strengthen further. The already available high-frequency data from January - such as industrial production, external trade, construction and retail sales - underpin this assumption. However, in the absence of an additional fiscal impulse, we are unlikely to see similarly strong growth figures for a sustained period of time.

Poland: We believe that GDP growth peaked in 4Q17, arriving at 5.1% y/y (1.0% q/q). Such a strong performance was driven by domestic demand (up 6.1% y/y), particularly the visible recovery of investment, which grew 11.3% y/y, suggesting a good year ahead. Although the beginning of the year was solid, with industry and retail sales growth above 8% y/y in January, we expect to see slightly lower GDP growth dynamics in 1Q18 and the quarters to come compared to 4Q17. The PMI index seems to have peaked, as recent months showed a soothing of market sentiment, while retail sales growth dynamics remain in a sideways trend. The update of our now-casting model suggests that GPD growth might decelerate in 1Q18, as it is tracking the growth dynamics above 4.5%. This year, we expect the economy to expand 4.2%. Thus, in the following quarters, annual GDP growth is expected at between 4.0% and 4.5%.

Romania: Romania's economic growth peaked at 8.8% y/y in 3Q17 and then lost speed to 6.9% y/y in 4Q17. One-off items like the extraordinary growth of agriculture of 33.2% in 3Q17, followed by a surprising fall of 1.6% in 4Q17, explained this development, along with a modest slowdown in retail sales at the end of 2017. Based on preliminary data, we foresee an additional slowdown of the economic growth towards 6-6.5% in 1Q18. We think that we will see a rotation of growth engines from consumption towards investments this year. Gross fixed capital formation recovered in the second half of 2017 and the prospects for this year are fairly good, in the context of higher inflows of EU structural and investment funds, ongoing optimism in the residential and office markets and ambitious plans for public CAPEX. On the other hand, personal consumption will cool off, since the higher inflation rate will erode part of households' purchasing power and net nominal salary gains will be below those from 2017.

Serbia: Unlike in most other countries in the CEE region, in Serbia, we expect an acceleration of economic activity in 2018, as the modest growth performance 2017 was marked by the effects of negative one-offs in the agriculture and energy sectors. In our view, the 1Q18 growth figure should land at 2.6% y/y (vs 1.1% y/y in 1Q17 and 2.5% y/y in 4Q17). Domestic demand will be the key driver of growth in 2018, as we expect that rising private and public wages, the stronger labor market, new public investment cycle, stronger lending activity and stronger FDI inflows should support the growth of public and private consumption and investments. Exports are expected to maintain their robust performance, but we expect a marginally negative contribution from net exports, as stronger domestic demand will put stronger pressure on imports. All that said, the FY18 growth figure is expected to land at 2.9% y/y vs. 1.9% y/y in 2017.

Slovakia: Real GDP growth was confirmed at 3.5% y/y in 4Q17, bringing up the full-year average to 3.4%. Nevertheless, the last quarter of 2017 is far from the expected peak. We expect economic growth to speed up to 3.9% this year (the first two quarters could stand at 3.6% and 4% y/y, respectively) and 4.2% in 2019. Domestic demand should remain a significant growth driver, mainly via household consumption, which is benefiting from the good labor market and consumer sentiment. Investment should also help growth, amid the good economic environment, gradual pick-up in EU funds absorption and private sector investments. Importantly, exports will get a boost from the start of production at the new Jaguar Land Rover car plant (late 2018) and the bright outlook of our Eurozone partners.

Slovenia: Following robust GDP expansion of 6% y/y in 4Q17 (making it the strongest growth since 2Q08), we see the Slovenian economy shifting into a slightly lower gear, as the growth is seen gradually decelerating below the 5% mark, i.e. averaging around 4.5% in 2018. We see this cooling down coming mainly at the cost of somewhat milder net export support, amid rising import pressures. However, the resilient export performance as well as ongoing firming on the domestic demand side should ensure that growth remains on a robust track in the coming quarters.

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