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2020/05/25 / Erste Group Research

Assessing the COVID-19 impact


We downgraded our GDP forecast to -4% y/y incorporating the new economic reality after the virus outbreak, subsequent lockdown measure introduced and overall effect on consumer and industry confidence. Baseline scenario envisages the strongest hit in 2Q20 followed by two more quarters of negative growth. Both S&P and Fitch recently confirmed ratings with the latter downgrading outlook to negative.

Inflation was low throughout the year, especially in 2H19 when even deflationary pressures emerged briefly. Non-existent demand side pressures coupled with low commodity prices on the supply side suggest further drop of price level. Our call for FY20 average CPI is -0.2%.

Inflation was low throughout the year, especially in 2H19 when even deflationary pressures emerged briefly. Non-existent demand side pressures coupled with low commodity prices on the supply side suggest further drop of price level. Our call for FY20 average CPI is -0.2%.

Due to an unrealistic CAPEX target, the general budget deficit in 2019 came in lower than budgeted, at 2.1% of GDP. There is little sense in discussing planned targets for this year, as the virus outbreak warrants urgent rebalancing. We pencil in a sizeable budget deficit this year at approx. 7.5% of GDP with the key driver being EUR0.5b loss in revenues (~15% drop). Taking into account the rise in guarantees, public debt is projected to soar towards 60% of GDP.

Early parliamentary elections that were scheduled for April have been postponed for now. In late March the country achieved two big milestones. They became the 30th NATO member while also finally been given green light for the start of EU accession negotiations. Those foreign relation successes undoubtedly give tailwind to Mr. Zaev’s SDMS party but a lot will depend on the winner of the Albanian votes after the former PM decided to reshuffle the cards regarding its minor coalition partner.

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General information

AuthorErste Group Research
Date2020/05/25
Languageen
Product nameCEE Country Macro Outlook
Topic in focusFX, Macro/ Fixed income
Economy in focus-
Currency in focus-
Sector in focus-
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