Slovakia with the most indebted households in CEE

On the radar

• Yesterday in Poland, wages growth was published at 7.1% y/y, PPI at -1.2% y/y and industrial production at 0.7% y/y.

• Today, Slovakia will publish August unemployment rate, Slovenia PPI in August, and Croatia wage growth in July and unemployment for August.

Economic developments

Today, we continue the topic of lending in CEE from yesterday, turning our focus to the indebtedness of the private sector, which is comprised of the households and corporates. Over the past 15 years, private sector indebtedness relative to GDP has declined in most CEE countries, with the only exception of Slovakia. In Slovakia, the increase in indebtedness has been driven primarily by households, where the debt-to-GDP ratio rose from 26% to over 45%. This is now the highest level among CEE countries and even exceeds that of Austria. In contrast, the indebtedness of Slovak non-financial corporations (NFCs) remains relatively low, ranking as the third lowest in the region at 77.3% of GDP; higher only than Poland (71%) and Slovenia (75%). Household debt levels in Romania and Hungary are significantly lower, amounting to just 17.8% and 20.6% of GDP, respectively, which is less than half of Slovakia’s. The highest overall private sector indebtedness in the region is observed in Croatia, where it approaches 170% of GDP. However, this represents a substantial reduction of approximately 60 percentage points since 2010.

Market movements

In the aftermath of the Fed rate cut, the Czech koruna and Hungarian forint continued to appreciate against the euro, reaching new multi-month highs. The EUR/CZK has held below 24.3 for several days, while the EUR/HUF broke through the 389 level yesterday. The Polish zloty saw a further correction, weakening by around 0.2% against the euro yesterday, as reported wage growth may support expectations for further rate cuts. In the bond markets, Romania and Hungary benefited from declining long-end yields, which are down by 20–30 basis points on a weekly comparison. In Hungary, the debt agency reopened its 10-year bond maturing in October 2035, achieving an average yield of 6.84%—the lowest since the bond’s launch. The spread between Hungarian and Polish 10-year bonds narrowed to 135 basis points from 170 basis points a week ago. Later today, after market close, Moody’s is scheduled to release its statement on Poland’s credit rating. Moody’s may follow Fitch Ratings’ recent move and revise the outlook to negative, and with the rating being one notch above S&P and Fitch, a downgrade cannot be completely excluded.

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