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2019/11/11 / Erste Group Research

GDP growth in 3Q to remain relatively strong

This week is all about Thursday and flash GDP data releases for the third quarter in most CEE countries. Despite all the odds stemming from the worsening external environment and recent weakening of market sentiment, we expect the region to remain relatively strong. In Czechia, Hungary, and Romania, growth dynamics should sustain the solid pace from the previous quarter (2.8% y/y, 4.7%, and 4.3% y/y, respectively). In Hungary, impressive growth of industry in October brings upside risks to our forecast. In Poland, growth is set to slow, but the expected dynamics of 4.0% y/y remains among the highest in the region anyway. It seems that Slovakia should settle on GDP growth close to 2% y/y. Inflation developments in October are of secondary importance. The central banks held their meetings last week and CPI is expected to ease in most countries, which should not concern the central banks in the nearest future.

While CEE currencies hardly moved last week, the Hungarian forint lost 1.3% w/w vs. the euro. The forint went above 333 EURHUF, as the central bank showed a strong determination to stick to its ultra-dovish monetary policy. The central bank increased the amount of HUF liquidity via FX swaps for the third consecutive week, while core inflation climbed further to 3.7% (from 3.4%). The currency development is in line with our expectation, as we forecast the EURHUF around 334-335 in the next three months.

Given the improved sentiment on global markets, government bond yields went up almost everywhere. CEE bonds fully mirrored the increase of German bund yields with a few exceptions. In Czechia the central bank left rates unchanged at 2% last week, but two members voted for a hike. It seems that the market has started to discount the possibility of an early cut, which is why the whole curve shifted up 20bp w/w. In Hungary, the divergence of monetary policy from the inflation development resulted in further steepening of the yield curve (10Y yields went up 20bp w/w). In Serbia, 9Y yields dropped below 3% after an unexpected rate cut and successful placement of Eurobonds.

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General information

AuthorErste Group Research
Product nameCEE Insights
Topic in focusFX, Macro/ Fixed income
Economy in focusCEE, Croatia, Czech Republic, Hungary, Poland, Romania, Serbia, Slovakia, Slovenia
Currency in focusCroatian Kuna, Czech Koruna, Euro, Hungarian Forint, Polish Zloty, Romanian Leu, Serbian dinar
Sector in focus-


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