By Pawel Swieboda and Milan Nic
There will be two types of anniversaries in Europe this year. The ones related to 1914, will be all about the risks of complacency. At last December’s European Council, Angela Merkel felt compelled to quote from The Sleepwalkers, a history book about the First World War, to stress what the price of political failure could be. However, there will also be two heartening anniversaries, recalling 25 years of democracy in Central Europe and 10 years of the region’s membership in the EU.
The weather in central Europe tends to be unspectacular but not unpleasant; the region’s economic forecasts for 2014 are starting to look a lot like its weather forecasts.
By Timothy Ash of Standard Bank
Emerging Europe has led the way so far in 2014 in new eurobond issues, with successful issues now from Poland (€2bn 10Y), Latvia (€1bn 7Y) and then Romania ($1bn each in 10Y and 30Y). All three deals were priced to sell and have performed well since issuance, with Poland 10Y rallying 75 basis points, Latvia the star rallying by 175bp, and Romania trading relatively well so far today (15bp tighter).
Each of these credits has good individual selling points.
The boys and girls of central and eastern Europe have been pretty good this year and Santa looks like he has some goodies in his sack for the region over the upcoming year.
A look at a raft of end-of-year analyses of the CEE region shows that the gloom that was afflicting the region last year has largely lifted.
Maybe it’s time to start preparing for a return wave of CEE migrants from western Europe, as Thursday’s flash GDP third quarter numbers show that most of the region’s economies are experiencing a sharp recovery – in contrast to stagnation in the eurozone.
If the normally bearish Capital Economics is starting to sing the economic praises of central Europe it might be time to admit that the downturn is well and truly done and that an economic rebound is underway.
Capital Economics was bearish about the future of the euro, and gloomy about the prospects of CEE countries closely tied to the eurozone. Now that the period of greatest danger for the common currency seems to have passed, the London-based analysis outfit is turning strikingly optimistic on central Europe.
A mixed picture for the prospects of an economic recovery emerging Europe, according to Monday’s forecast from the European Bank of Reconstruction and Development.
The EBRD found that the more advanced countries of central Europe will probably do a bit better than expected next year, while the rest of the post-communist region is sputtering.
A lot of recent numbers indicate that central Europe’s economies have turned the corner and are starting to rebound after a slump late last year and in the first months of 2013.
More data buttressing that case came in over the last few days. In Poland, new car registrations in September were up by 16.5 per cent at 24,963 cars – that’s 13 per cent higher than in August.
Central Europe’s economies are showing some signs of a rebound in growth – the first decent news out of the region in months – according to purchasing managers index data for June released on Monday.
Bad GDP figures from the eurozone on Wednesday but there’s a pleasant surprise from an unexpected quarter: Hungary’s economy contracted by only 0.9 percent in annual terms in the first three months.
Doesn’t sound like good news. But investors had been expecting a drop of as much as 1.4 per cent. With hopes of further improvement in the rest of 2013 buoying the Budapest market, the forint gained 1 per cent against the euro.
The numbers are in and they’re not pretty.
Growth in central Europe is only at a sluggish 0.8 per cent – lower than any time since the depths of the economic crisis in 2009.
At last, a breath of optimism on central and eastern Europe from one of the more cautious economic forecasters.
The European Bank for Reconstruction and Development on Monday predicted that growth in the region would increase slightly from 2.6 per cent in 2012 to 3.1 per cent this year. More significantly, given the EBRD’s past warnings, the bank is saying that risks of the eurozone triggering another CEE financial crisis are declining. If the bank’s right, that’s good news.
Central Europe’s slowing economies are driving down their inflation rates – the latest to post figures is Poland, where inflation dropped to an annual 2.8 per cent in November, down from 3.4 per cent in October.
That puts inflation within spitting distance of the central bank’s target rate of 2.5 per cent – the first time that has happened in two years. Inflation in June, when opinions about the economy were a lot more optimistic, was 4.3 per cent.
The eurozone recession is biting hard in central Europe. According to flash data published on Thursday, third-quarter GDP fell in Hungary, Romania and the Czech Republic compared with the previous three months, and rose marginally in Bulgaria.
The only country of the five reporting figures to do reasonably well is – ironically – eurozone member Slovakia, which posted quarter-on-quarter growth of 2.2 per cent. With Poland, which publishes its numbers on a different cycle, also slowing, the next few months look difficult for the region.