Sovereign, Sub-Sovereigns & Agencies, Covered Bonds
A significant acceleration in economic growth could be observed in the first quarter of 2016. The strongest momentum was generated by domestic demand, as higher disposable income due to the tax reform, as well as a lower inflation rate have boosted private consumption. Another growth driver is investment, which has only begun to recover significantly a few months ago. The recovery in 2016 is largely driven by extraordinary effects like the influx of refugees and the tax reform. In 2017 Austria's economy should improve considerably.
Generally tight spreads, supported by the PSPP program of the ECB, and a primary market dominated by OeKB characterized the SSA-segment in the first half-year. Following the downgrade by Moody´s for the Republic of Austria in June, ratings were adjusted as well in the SSA-segment and therefore are ´capped´ at Aa1. The outlined accord for the settlement in regard to Heta with a large majority of creditors should help to strengthen support-assumptions in the sub-sovereign segment and could facilitate new issues on the level of provinces and municipalities.
The earnings performance of Austrian banks was affected by numerous non-recurring effects in recent years. The absence of extraordinary charges alone was sufficient to boost 2015 results compared to the previous year. In the aggregate, domestic credit institutions were able to report significant profits again in the recent financial year. So far we believe that the effects of the Brexit vote on the perceived creditworthiness of Austrian banks will be negligible. In our opinion it is rather more likely that it will improve as a result of the announced resolution of the Heta dispute. The international EUR benchmark primary market has ground to a virtual standstill in an initial reaction to the outcome of the UK referendum.
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