Is Europe going to explode? 3rd Budapest Business Boat 30 August 2010 Jean-Paul Betbéze Chief Economist Group Crédit Agricole S.A. +33 1 43 23 45 12
[email protected]
Guillaume TRESCA Emerging market Strategist Crédit Agricole CIB
[email protected]
research.ca-cib.com Crédit Agricole Corporate and Investment Bank is authorised by the Comité des Etablissements de Crédit et des Entreprises d’Investissement (CECEI) and supervised by the Commission Bancaire in France and subject to limited regulation by the Financial Services Authority. Details about the extent of our regulation by the Financial Services Authority are available from us on request.
1 – 3 areas and 3 questions
2
Real GDP growth: USA, EMU & BRIC
y/y, %
Forecasts
Inflation rate: USA, EMU, BRIC 10,0
10,0
%
def lati on?
8,0
8,0
6,0
6,0
stagflation?
4,0
4,0
2,0
2,0
0,0
0,0
-2,0
-2,0
-4,0
-4,0 01
-6,0
02
03
Source : Datastream, CA
97
99
Source : Datastream, CA
30 August 2010
01
03 USA
05 EMU
07
09 11 Average BRIC
n? o i ss e r p de 04
05
06 US
07
08 EMU
09
10
Average BRIC
that stocks do not fully understand Pts
3
Pts
Stock markets
4100
1250
3900
1150
3700 1050
3500 3300
950
3100
850
2900 750
2700 2500 ja ma mai- juil.nv.- rs-09 09 09 Source : Bloomberg, CA 30 August 2010
650 se nov.- ja ma mai- juil.pt.- 09 nv.- rs-10 10 10 CAC 40
S&P500 (rhs)
2 - End of recession in 2009, thanks to emerging countries
4
Advanced countries: real GDP growth 8,0
y/y %
6,0 4,0
2,4
2,0
World: real GDP growth
2,2
0,9
8,0
0,0
y/y %
6,0
-2,0 -4,0
-3,4 2008
2009
2010
2011
4,0
4,2
4,0
2010
2011
3,2
2,0
Source : Datastream, Crédit Agricole S.A.
Emerging countries: real GDP growth 8,0
0,0
y/y %
6,8
6,1
6,3
4,0
-0,8
-2,0
6,0
-4,0
2,7
2008
2,0
2009
0,0
Source : Datastream, Crédit Agricole S.A. -2,0 -4,0 2008
2009
Source : Datastream, Crédit Agricole S.A.
30 August 2010
2010
2011
In the US: mostly inventories, export issue
5
US: Contributions to GDP growth
% points, annual rate 8 6
6
4
4
2
2
0
0
-2
-2
-4
-4
-6
-6
-8
-8
-10
-10 T4 07
T2 08
PCE res. inv. Source : BEA, CA. 30 August 2010
forecasts8
T4 08
T2 09
inv. non res.
T4 09
T2 10
inventories
stocks
T4 10 net exports
In the EMU recovery is both slow…
6
EMU: GDP growth forecast q/q, % Forecasts
2,0
pp
1,5
1,5
1,0
1,0
0,5
0,5
0,0
0,0
-0,5 -1,0
-0,5 -1,0
-1,5
-1,5
-2,0
-2,0
-2,5
-2,5
-3,0
-3,0 2007
08 Source : Insee, CA
30 August 2010
09
10
11 GDP
EMU: contributions to GDP growth
2008
2009
Investment Private consumption GDP
2010
2011
Net exports Inventories Source : Eurostat, CA
and differentiated.
7
EMU: GDP growth forecasts
Qo Q, % 2,5 2,0 1,5 1,0 0,5 0,0 -0,5 -1,0 -1,5 T4 09
T110 Germany
France
So urce : Euro stat, Crédit A grico le S.A . 30 August 2010
T2 10 EM U
Italy
T3 10 Spain
Greece
T4 10 P o rtugal
3 - Germany is in advance, thanks to exports – but for how long?
8
Germany: GDP growth forecast q/q, % Forecasts
2,5 2,0 1,5 1,0 0,5 0,0 -0,5 -1,0 -1,5 -2,0 -2,5 -3,0 -3,5
Germ any GDP private consumption investment change in inventories (b) net exports (b) unemployment rate inf lation (y/ y %)
08 Source : Insee, CA
30 August 2010
09
10
11 GDP
2008
2009
2010 2011
0,7 0,2 2,3 0,5 -0,5 7,8 2,8
-4,7 0,0 -8,9 -0,9 -3,2 8,2 0,2
3,1 -1,0 3,7 1,4 1,5 7,7 1,1
2,1 0,7 4,2 0,0 1,1 7,2 1,5
2010 Q1 0,5 -0,8 -1,6 1,9 -1,3 8,1 0,8
Q2 2,2 0,5 6,3 -0,1 1,8 7,7 1,0
Q3 0,2 0,1 1,5 0,0 0,0 7,5 1,1
Q4 0,5 0,2 0,4 0,0 0,2 7,5 1,4
France takes advantage of it
9
France: GDP growth forecast 2,0
Q/Q, % Forecasts
1,5
France
2008
2009
1,0 GDP private consumption investment change in inventories (b) net exports (b) unemployment rate inf lat ion (y/ y %)*
0,5 0,0 -0,5 -1,0 -1,5 -2,0 08 09 Source: Insee, Crédit Agricole S.A.
30 August 2010
10
11 GDP
0,1 0,5 0,5 -0,3 -0,3 7,4 2,8
-2,5 0,6 -7,1 -1,9 -0,2 9,1 0,1
2010
2010 2011 1,4 1,4 -2,4 0,4 0,3 9,8 1,5
1,2 1,3 0,3 0,2 0,0 9,7 1,6
Q1 0,2 0,0 -0,9 -0,2 0,6 9,5 1,3
Q2 0,6 0,4 0,8 0,6 -0,5 9,8 1,6
Q3 0,2 0,1 -0,5 0,1 0,1 9,9 1,4
Q4 0,2 0,3 -0,2 0,0 0,1 10,1 1,4
Slow too in Italy
Q/Q, %
10
Italy: GDP growth forecast Forecasts
2,0
It aly
1,0 0,0
GDP private consumption investment change in inventories (b) net exports (b) unemployment rate inf lat ion (y/ y %)
-1,0 -2,0 -3,0 -4,0 08 Source : Insee, CA
30 August 2010
2008
09
10
11 GDP
-1,3 -0,8 -4,0 -0,3 0,1 6,7 3,5
2009 -5,1 -1,8 -12,2 -0,5 -1,2 7,8 0,8
2010
2010 2011 0,9 0,4 0,1 0,6 0,2 8,7 1,7
0,9 0,5 1,0 0,0 0,4 8,8 1,7
Q1 0,4 0,1 0,6 0,0 0,4 8,6 1,3
Q2 0,4 0,1 -0,3 0,1 0,2 8,7 1,6
Q3 0,1 0,1 0,1 -0,1 0,1 8,8 2,1
Q4 0,1 0,1 0,1 0,0 0,1 8,8 1,9
And pain in Spain
11
Spain: GDP growth forecast q/q, % Forecasts
2,0 1,5
Spain
1,0 0,5
2008 GDP private consumption investment change in inventories (b) net exports (b) unemployment rate inf lat ion (y/ y %)
0,0 -0,5 -1,0 -1,5 -2,0 -2,5 -3,0 08 Source : Insee, CA
30 August 2010
09
10
11 GDP
0,9 -0,6 -4,4 -0,3 1,7 11,4 4,1
2009 -3,6 -5,0 -15,3 -0,8 3,3 18,0 -0,2
2010
2010 2011 -0,4 0,4 -7,4 -0,1 0,8 19,7 1,8
0,5 -0,2 -2,0 0,3 1,0 19,7 2,0
Q1 0,1 0,5 -2,7 -0,1 0,2 19,2 1,2
Q2 0,3 0,5 -1,3 0,1 0,1 19,7 1,6
Q3 -0,3 -0,7 -1,2 0,0 0,2 20,0 2,1
Q4 0,0 0,0 -0,8 0,0 0,1 19,9 2,2
Unemployement shows it too well
12
EMU: unemployment rates
% 20 18 16 14 12 10 8 6 4 05
06
Spain
07
EM U So urce : Euro stat, Crédit A grico le S.A . 30 August 2010
08 Germany Italy
09 France
10
Hence: four scenarios
13
Emerging countries: More of the same ?
Developed countries: back to “normal”, lower, worse?
30 August 2010
4 - Some fiscal consolidation is not enough
14
Debt-to-GDP paths 200 % of GDP
(primary balance improves by 0,2 points a year)
180 160 140 120 100 80 60 40 20 08 09 10 11 12 13 EMU Germany Spain Netherlands Greece Portugal Sources : EC, CA simulations 30 August 2010
14
15 16 France Belgium
17
18
19 20 Italy Ireland
And more has to be explained… and organized
15
Debt-to-GDP paths 200 % of GD P
(primary balance improves by 1 point a year)
180 160 140 120 100 80 60 40 20 08 09 10 11 12 13 EMU Germany Spain Netherlands Greece Portugal Sources : EC, CA simulations 30 August 2010
14
15 16 France Belgium
17
18
19 20 Italy Ireland
Markets know it, but the game is complex bp 1000 900
16
Long-term Government Bond Yields Spreads vis-à-vis Germany
800 700 600 500 400 300 200 100 0 Dec-09 Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-10 Jul-10 Aug-10
Source : Bloomberg, CA 30 August 2010
Portugal
Ireland
Italy
Greece
Spain
France
5 - Zero bound is near everywhere %
17
Fed: open-market operations
6,0 5,0 4,0 3,0 2,0 1,0 0,0 janv.-07
avr.-07
juil.-07
oct.-07
janv.-08
avr.-08
juil.-08
oct.-08
Fed funds
Source : Bloomberg, CA
%
janv.-09
avr.-09
juil.-09
effective Fed funds
oct.-09
janv.-10
avr.-10
juil.-10
3-month rate (Libor)
ECB: short-term interest rates
6,0 5,0 4,0 3,0 2,0 1,0 0,0 Jan-07
Apr-07
Source : Bloomberg, CA
30 August 2010
Jul-07
Oct-07
Jan-08
Apr-08 Refi
Jul-08
Oct-08 Eonia
Jan-09
Apr-09 Euribor 3M
Jul-09
Oct-09
Jan-10 deposit facility
Apr-10
Jul-10
But Non Standard policies still differ
$bn 2 500 2 250 2 000 1 750 1 500 1 250 1 000
18
Fed: assets composition A B CP & M M FF TA F Other credit extensio ns Other Fed A ssets P rimary Dealers Credit M isc. Go ld Sto ck Repo RM B S A gency securities Treasury securities
EURbn 2 250 1 750 1 250
500
250
250
Source : Fed, CA
juil.-08
Claims o n residents (TA F)
1 000
500
janv.-08
OM O
1 500
750
juil.-07
LTRO
2 000
750
0 janv.-07
ECB: assets composition
janv.-09 juil.-09
janv.-10 juil.-10
0 Jan07
Other assets
Jul07
Source : ECB, CA
30 August 2010
Jan08
Jul08
Jan09
Jul09
Jan10
Jul10
Claims o n no nresidents Go ld
And the ECB halts its program in favour or Greece
19
ECB securities purchase programmes 70
EURbn
EURbn
60 50 40 30 20 10 0
18 16 14 12 10 8 6 4 2 0
14 21 28 4 juin 11 18 25 2 9 16 23 30 6 13 20 mai mai mai juin juin juin juillet juillet juillet juillet juillet août août août amount of w eekly purchases (rhs) Source : BCE, Crédit Agricole S.A
30 August 2010
cumulated govt bond purchases
6 - The US asks the Yuan to appreciate
20
Dollar constellation: "Asia Currencies"
(1999=100)
(China, India, Thailand, Hong Kong, Korea; index 100 in 1999)
140 130 120 110 100 90 80 70 99
00
01
Source : Datastream, CA 30 August 2010
02
03
04 CNY
05 INR
06
07 THB
08 HKD
09
10 KORW
And the euro does the rest of the job
21
euro - dollar exchange rate 1,70 euro/usd
1,60
1,50
1,40
1,30
1,20
1,10 Jan-07
Jul-07
Jan-08
Source : Datastream, CA 30 August 2010
Jul-08
Jan-09
Jul-09
Jan-10
euro - dollar
Jul-10
A huge deficit in the US, after all…
22
US: Fiscal deficit
% of GDP 3 3 2 2 CBO 1 forecasts 1 0 0 -1 -1 -2 -2 -3 -3 -4 -4 -5 -5 -6 -6 -7 -7 -8 -8 -9 -9 -10 -10 1956 1964 1972 1980 1988 1996 2004 2012 2020 Source : CBO (January 2010 baseline, CA. grey areas: US recessions
30 August 2010
US: public debt and debt service % of GDP 70 65 60 55 50 45 40 35 30 25 20
% of receipts 21 19 17 15 13 11 9 7 5
1956 1963 1970 1977 1984 1991 1998 2005 2012 2019 grey areas: debt debt service (RHS) US recessions Source : CBO (January 2010 baseline), BEA,
10Y yields may say different stories: deflation?
US: S&P500 & 10Y yield
1941-43 = 10 1 250 1 200 1 150 1 100 1 050 1 000 950 900 850 800 750 S&P500 US T-bond (RHS) 700 650 Jan- Mar- May- Jul- Sep- Nov- Jan- Mar- May- Jul09 09 09 09 09 09 10 10 10 10
% 4,2 4,0 3,8 3,6 3,4 3,2 3,0 2,8 2,6 2,4 2,2 2,0
Euroland: Eurostoxx 50 & 10Y yields % 3 100
3,6
2 900
3,4
2 700
3,2
2 500
3,0 2,8
2 300
2,6
2 100
2,4
1 900
2,2
1 700 janv.-09 avr.-09 juil.-09 oct.-09 janv.-10 avr.-10 juil.-10
2,0
Source : Federal Reserve, IHS Global Insight, CA.
Source : Datastream, CA.
30 August 2010
23
Eurostoxx 50
German Bund (rhs)
7 – Recession strikes Western Europe, Hungary is affected
24
10 years of GDP growth
y/y, % 15,0 10,0 5,0 0,0 -5,0 -10,0 -15,0 2000
2001
2002
Czech Rep
2003
2004
Estonia
Source: Datastream, Crédit Agricole S.A. 30 August 2010
2005
2006
Hungary
2007
2008
Poland
2009
2010
Slovakia
Convergence is still in process – Hungary is in a relative good position
GDP per Capita in PPP
USD 30 000 25 000 20 000 15 000 10 000 5 000 2000
2001
2002
Czech Rep
2003
2004
Estonia
Source: Datastream, Crédit Agricole S.A.
30 August 2010
2005
2006
Hungary
2007
2008
Poland
2009
2010
Slovakia
25
Public debt: a key issue for Hungary
26
Public debt to GDP ratio
% 90 80
Maastricht
70 60 50 40 30 20 10 0 2000
2001
2002
2003
2004
2005
2006
2007
2008
Czech Rep
Estonia
Hungary
Poland
Slovakia
Maastricht Cr.
2009
Source: Datastream, Crédit Agricole S.A.
A public finance slippage in Hungary compared to other Central Europe neighbours 30 August 2010
Rating agencies are not far away
27
Sovereign Rating LT S&P A ABBB+ BBB BBB-
Czech Rep
Estonia
Source: Datastream, Crédit Agricole S.A. 30 August 2010
Hungary
Poland
09 dé c-
08 dé c-
07 dé c-
dé c-
06
05 dé c-
04 dé c-
03 dé c-
02 dé c-
01 dé c-
00 dé c-
dé c-
99
BB+
Slovakia
Investment Grade
Hungary: is the weakest link in Europe?
28
Weak economic rebound… After 6.3% negative growth in 2009, the economy will not come out of recession in 2010, likely posting meagre -0.3%.
…As the domestic demand has been hurt hard The fiscal austerity and hammered banking sector are curtailing domestic demand; recovery will be very gradual.
Sensitive to a European slowdown. Any ‘double dip’ in the wake of the European sovereign crisis will weigh on growth.
Activity better but demand still languishing 20 YoY%
60
15
55
10 5
50
0
45
-5 -10
Retail sales
-15
Industrial production
-20
Hungarian PMI (rhs)
-25 Jun-05
40 35 30
Jun-06
Jun-07
Jun-08
Source: MarkIt, HSO, Crédit Agricole CIB
30 August 2010
Jun-09
Jun-10
Hungary is lagging the recovery
29
Sharp recession 2009 GDP Qatar China India Lebanon Vietnam Morocco Egypt Indonesia Tunisia Algeria Poland Australia Philippines Brazil Korea Saudi Arabia Norway Malaysia South Africa Switzerland Taiwan New Zealand Singapore Greece Thailand France Canada USA Kuwait Hong Kong Argentina United Arab Emirates Spain Czech Republic Turkey Germany United Kingdom Sweden Italy Japan Hungary Mexico Romania Russia
-10
Qatar Singapore China India Philippines Brazil Vietnam Malaysia Taiwan Lebanon Indonesia Turk ey Korea Hong Kong Egypt Russia Algeria Mexico Morocco Argentina Thailand Saudi Arabia Sweden Tunisia Australia Canada Kuwait New Zealand Germany JAPAN Poland USA South Africa United Arab Emirates Switzerland Czech Republic United Kingdom France Norway Italy Romania Hungary Spain Greece
here
-5
Source: Crédit Agricole CIB
30 August 2010
Weak rebound 2010 CACIB forecasts
0
5
10
15
-10
here
-5
0
5
10
15
20
Where are the risks? Hungary is vulnerable
30
Assessing emerging vulnerability by measuring financial, sovereign, and European exposure fragilities. Final vulnerability index: we aggregate those three vulnerability indicators. We assign the same weigh to sovereign and financial vulnerability, but we underweight the trade exposure to Europe.
Financial fragility
Vulnerability index
Indicator risk from 1 to 5 (5 = fear)
Sovereign fragility
Europe exposure
Eastern Europe ahead: Hungary at the top 3.7 Arithmetic average EM average Asia Latam Central Europe MEA EM members of G20 BRICs
30 August 2010
2.46 2.20 2.28 3.44 2.23 2.29 2.29
Who’s next on the list? Central Europe in the eye of the storm (1) Vulnerability index
Eastern Europe looks like the most vulnerable region, only partly due to the trade exposure to Europe.
Vulnerability ranking (from riskiest to safest)
Asia and LatAm are safer with strong economic recovery based on domestic demand. Hungary Czech rep.
Eastern Europe ahead
Romania Poland Vietnam
Arithmetic average EM average Asia Latam Central Europe MEA EM members of G20 BRICs
30 August 2010
2.46 2.20 2.28 3.44 2.23 2.29 2.29
Ukraine South Africa Turkey India
3.68 3.45 3.41 3.21 3.21 3 2.89 2.87
Morocco
2.55 2.53
Brazil
2.52
Kazakhstan Mexico
2.47 2.44
Russia
2.41
Israel
2.31
Malaysia
2.27
Egypt
2.21
Philippines
2.2
Indonesia
2.17
Korea
2.15
Thailand
2.13
Taiwan
2.03
Singapore
2
Argentina
1.88
Hong Kong
1.85
UAE
1.84
China
1.69
Saudi Arabia
1.57
31
Who’s next on the list? Central Europe in the eye of the storm (2)
Exports to EU as % of GDP 20%
32
Share of government debt in FX 45%
Hungary 47%
18%
Hungary: 38%
40%
16%
35%
14%
30%
12% 10%
25%
8%
20%
6% 4%
15%
2%
5%
10%
0% E Europe
Asia
MEA
Latam
Credit-to-deposit ratio 140%
Hungary: 133%
120% 100% 80% 60% 40% 20% 0% E Europe
MEA
Asia
Source: Bloomberg, DataStream, Crédit Agricole CIB
30 August 2010
Latam
0% E Europe
Latam
Asia
MEA
Budgeting for success (1)
33
Hungary is not Greece The IMF plan has been a success in 2008-2009. Hungary did not draw the last IMF tranche. Debt path is sustainable, primary surplus Debt and budget deficits in 2010 are highly achievable Better budget situation than most of the EM countries
But it is not so rosy everywhere Markets are worried, HUF under pressure which refrains the CB to cut rates and hamper the economic recovery Budget goals are achievable only if the government implements further fiscal austerity measures Imperative in such a context to have a monetary and fiscal cooperation
Weak HUF Hurt economy
Higher real rates
30 August 2010
Poor gov’ communication
Worried markets
J apan US Ireland Spain Greece UK Latvia France Lithuania Portugal Poland India Malasia Nigeria Netherland Australia Singapore Belgium Austria Kenya Finaland Canada Denmark Slovak Rep Italy S lovenia Germany Honk Kong Czech South China Chile Israel Thailand Sweden Ukraine Romania Saudi Rus sia Argentina Pak istan Peru Colombia New Iceland Phlippines Mexico Turkey Indonesia Norway Estonia Switzerland Bulgaria Hungary Brazil Korea
Here 20%
India Turkey Philip Egypt Brazil Indonesia Israel Malaysia Morocco Mexico Thailand Hungary Vietnam Saudi Arab Poland Argentina Taiwan Romania Ukraine Czech Rep. Korea Russia China Saudi Arab Kazak UAE Singapore HK
30 August 2010
%
Emerging average: 2.7% Developped: 5.0% Hungary here 12 10 8 6 4 2 0 -2 -4
34
Budgeting for success (2)
Lower fiscal adjustment is needed
Required adjustment in 2010-20 of cyclically adjusted primary balance to achieve debt target in 2030
Low interest payments/ Gov revenue 30%
25%
15%
10%
5%
0%
Source: IMF, Moody’s,CACIB
Hungary: it is not 2008
35
Better liquidity context FX reserves are now EUR29.1bn, much higher than before the IMF programme (up by +90%). This looks ample, and appropriate to face any new liquidity crisis. Deleveraging has already started
The German boost: Hungary exports drag higher by Germany
FX reserves at comfortable levels 35
bn
%
more confortable level
30
%
30
15
20
10 5
10 25
0
0
FX reserves
-5 -10
20
Export YoY%
German IP
-10
-20
-15
15 -30 10 Jan-06
Jul-06
Jan-07
Jul-07
Jan-08
Jul-08
Source: Bloomberg, NBH, Crédit Agricole CIB
30 August 2010
Jan-09
Jul-09
Jan-10
Jul-10
-40 Jul-02
-20 Jul-03
Jul-04
Jul-05
Jul-06
Jul-07
Jul-08
Jul-09
-25 Jul-10
Hungary: it is getting better
36
It is not the old good days but it is getting better GDP rebound
Lower external debt (% GDP) %
120
IP rebound
YoY % 8
YoY % 20
110
6
15
100
4
10
90
2
5
80
0
0
-2
-5
70
-10
-4 60
-15
-6
50
-20
-8
40
-25
-10 2005 2006 2007 2008 2009 2010 2011
-30 00 01 02 03 04 05 06 07 08 09
Unemployment has peaked '000s 550
10
02
03
04
05
06
07
08
09
10
Export rebound YoY % 40
500 20 450 400
0
350 -20
300 250
-40
200 99 00 01 02 03 04 05 06 07 08 09 10
02
03
04
05
06
07
08
09
10
Source: Bloomberg, NBH, HSO, Crédit Agricole CIB
30 August 2010
The German boost
37
Hungary may benefit the fantastic German rebound
%
%
30
15
20
10 5
10
0
0
Hungarian exports drag higher by the German economy
-5 -10
Export YoY%
-10
German IP
-20
-15
-30
-20
-40 Jul-02 115
Jul-03
Jul-04
Jul-05
Jul-06
Jul-07
Jul-08
Jul-09
%
-25 Jul-10 %
50 40
110
30
105
20
100
10 95
0
90 85 80 Jul-02
Jul-03
IFO headline (rhs)
-10
Export YoY% 3m average (rhs)
-20
Jul-04
Jul-05
Jul-06
Jul-07
Source: Bloomberg, HSO, IFO Crédit Agricole CIB
30 August 2010
Jul-08
Jul-09
-30 Jul-10
The strong IFO bodes well for the Hungarian exports and so the economy
HUF: oversold?
38
HUF is driving by fears Should renewed worries materialise, we would not rule out NBH intervention to cap the upside in EUR/HUF. Past experience shows that the speed of moves matters as much as the level. 300 seems to be an appropriate level. HUF should rebound help by the CA surplus and better risk appetite
FX oversold?
HUF driven by fears 1.5 0% 320
80
310
EUR/HUF
300
VIX (rhs)
70
290
60
280
50
2.0
UAE CNYHKD ARP SAR
-2% SGD TWD PH P
-4%
270 260
40
250
30
240 220 Jun-08
-6%
3.0 KZT
UAH
3.5 VND
MXN
IN R
Jun-09
Dec-09
BRL MAD
KRW
Jun-10
CZK
-12%
Source: Bloomberg, Crédit Agricole CIB
FX depreciation over the last 6 month
RO N
PLN
4.5
Overal vulnerability index (the higher, the riskier)
ZAR
10 Dec-08
4.0
ILS MYR
-8%
-10%
30 August 2010
THB EG IDRP
RUB
20
230
2.5
HUF
HUF: Private flows will likely keep on coming back
39
As suggested by past data, private flows should come back further in 2010 Abundant global liquidity also supports flow prospects Bank flows will likely come back further in 2010, targeting Asia’s medium term potential, even if portfolio flows may moderate
Private capital flows to EM: welcome back in 2010
Capital flows: after portfolio, welcome to bank flows
300%
500
250%
400
800
200%
300
600
150%
200
400
100%
100
200
50%
1200
Y oY change in private capital f low s to EMs (RHS) Total private f low s to EMs (LHS, USD bn)
1000
0 -200 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 Sources: Bloomberg, CEIC, Credit Agricole CIB
30 August 2010
Foreign direct investment Portf olio investment Banks Other USD Bn
0
0%
-100
-50%
-200 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10
Rates outlook: ready to act
40
Renewed worries may prevent the NBH from implementing a final cut as the recovery is losing some traction. The inflationary environment has changed and limits the scope for a cut. CB projections revised higher. As risk aversion may remain high, the NBH has dropped its easing bias leaving the door open for an emergency hike.
Real rates still high
FX levels and monetary policy %
320
12 Poland
310
11
accomodative
300 290
10
280
9
Hungary
270 8
260 250
7
240
EUR/HUF
230
Base rate (rhs)
220 Jun-08
6
Czech
%
5 Dec-08
Jun-09
Sources: Bloomberg, NBH, HSO, Credit Agricole CIB
30 August 2010
restrictive
Romania
Dec-09
Jun-10
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
Forecasts
41 Macro forecasts 09 Emerging Europe Czech Republic Hungary Poland Russia Romania Turkey
Real GDP (YoY. %) 10 11
09
CPI (YoY. %) 10
11
Current Account (% GDP) 09 10 11
-5.2
3.9
4.1
7.9
6.3
6.1
1.0
0.3
0.0
-4.2 -6.3 1.8 -7.9 -7.1 -4.7
1.5 -0.3 2.8 4.7 0.7 5.5
3.0 2.6 3.4 4.6 2.0 4.5
0.5 5.4 3.5 11.7 5.6 6.3
1.5 3.5 2.9 7.5 5.0 9.5
2.0 3.5 2.8 8.0 5.5 7.0
-1.1 1.2 -1.7 4.0 -4.4 -2.3
-2.5 -1.0 -2.5 4.0 -5.0 -4.2
-2.8 -2.0 -3.0 4.0 -6.0 -4.5
FX forecasts Central Europe
26-Aug
Sep-10
Dec-10
Mar-11
Jun-11
Sep-11
Dec-11
EUR/CZK EUR/HUF
24.84 283
25.20 285
25.00 260
24.00 255
24.00 250
23.50 245
23.00 240
Poland
EUR/PLN
3.98
4.05
3.90
3.70
3.50
3.50
3.30
Romania
EUR/RON
4.25
4.30
4.40
4.45
4.50
4.50
4.50
Czech Rep. Hungary
Rate forecasts Emerging Europe Czech Rep. Hungary Poland
30 August 2010
14D repo 2W repo 7D repo
26-Aug 0.75 5.25 3.50
Sep-10 0.75 5.00 3.50
Dec-10 0.75 5.00 3.50
Mar-11 1.00 5.00 3.75
Jun-11 1.25 5.00 4.25
Sep-11 1.50 5.50 4.25
Dec-11 1.75 5.50 4.25
Romania Russia
2W repo Refinancing rate
6.25 7.75
6.00 7.75
6.00 7.75
6.50 8.00
6.75 8.50
7.25 9.00
7.25 9.25
Turkey
Overnight
6.50
7.00
8.25
9.00
9.50
10.25
10.50
Disclaimer Certification The views expressed in this report accurately reflect the personal views of the undersigned analyst(s). In addition, the undersigned analyst(s) has not and will not receive any compensation for providing a specific recommendation or view in this report. Jean Paul BETBEZE, Guillaume TRESCA
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30 August 2010
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