News
CZ: Neutral – 2Q GDP growth slows to 2.4% yoy / Dovish – CNB Vice-Governor Hampl said that he found no reason to tighten monetary policy at the moment (p2)
HU: Negative – Economy stagnates in 2Q qoq (p2)
RO: Negative – 2Q GDP comes in at 1.4%% yoy / Negative – MinFin sells RON 700mn in 1Y T-Bills: yield 6.64%, bid-cover 1.9 (p2)
SK: Neutral – 2Q GDP comes in at 0.9% qoq sa and 3.3% yoy (p2)
Today’s Events
PL: July Employment and Wages / RU: RUB25bn 2017 OFZ auction, Weekly CPI / SK: July CPI/ SL: June Unemployment
EEMEA Markets
A key concern of ours that has emerged over recent weeks is the impact of recent financial market stresses on economic activity in CEE. We entered Q3 expecting a “soft” Q2. As per flash GDP estimates released on Tuesday, this is what has materialised. Czech and Romania posted GDP gains of 0.2% QoQ, following gains of 0.9% and 0.6% QoQ in Q1 respectively. Meanwhile GDP was flat QoQ in Hungary. Slovakia was Tuesday’s outperformer, posting robust gains of 0.9% QoQ. Notably releases for Latvia and Estonia also showed decent gains for Q2. Russia joined the weaker group however, posting gains of only 0.2% QoQ from data released last week. Tuesday also saw EMU post GDP of 0.2% QoQ, down from 0.8% QoQ in Q1. At this stage we do not have a breakdown of GDP data. More of a concern at this stage is Q3 and Q4. To date we have limited data available but with the absence of Poland, the PMIs did not show improvement in Julz. Consumer confidence surveys for July are mixed. On a positive note Czech and Poland edged upwards but surveys for Hungary and Romania deteriorated. Turkey’s also declined, albeit from a very high level. If over the coming 1-2 months, the activity data does not show signs of re-acceleration, a number of countries in the region will likely be forced to revise their budget assumptions for 2012 and potentially put forward more austerity measures to meet budget deficit targets. At least for those countries in the EU, even if not in EMU, there will be limited tolerance for deficit overshoot. Over recent days authorities in Poland have indicated that they will not be revising budget assumptions for next year. At least in Poland next year the football championships will act as a buffer if the second half of 2011 proves weaker than expected but this time around Poland will not be able to draw off fiscal policy to support the economy. Meanwhile in Hungary the convergence programme assumes GDP growth of 3.0% next year on top of what appears to be an increasingly unrealistic 3.1% for this year. Yesterday saw the Finance Ministry indicate that macro assumptions may have to be revised. While fiscal contraction is argubly counter productive at this stage in Hungary, the authorities may find that they have little choice but to put further measures forward.
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Gillian Edgeworth
UniCredit Research