The FINANCIAL — “In Austria, growth in H2 will have to accelerate considerably for our 2013 GDP forecast to be accurate.
For 2013 as a whole, we still project real GDP growth of 0.5 percent. The anticipated upturn in economic activity should reach its high point in Q4 2014/Q1 2015, as reflected in the projected GDP growth rates of 1.5 percent for 2014 and 2.3 percent for 2015. All in all, in 2014 there will be a sharp reduction in the growth differences between the various regions in Central and Eastern Europe (CEE). This convergent trend in GDP growth should also tend to characterise developments in 2015,” said Peter Brezinschek, head of Raiffeisen Research, a unit of Raiffeisen Bank International AG (RBI), his analysis in the recent publication for the fourth quarter „Central & Eastern European Strategies“.
The reason for this reduction in growth differences is the optimistic forecast for Germany, which should pave the way for increases in net exports in many of the open CEE economies. Domestic demand will probably only pick up with a certain lag, and as a result there will not be any significant change in current account balances, according to Raiffeisen Bank Aval.
After a disappointing start to the year, the assessment of Raiffeisen Research’s analysts of the economy started to improve in the subsequent months. “Russia and Ukraine were the only countries where the spring data releases were quite subdued. As there were no signs of an upturn over the summer, we lowered our Russian GDP forecast for 2014 to plus 2 percent. Otherwise, we only modestly reduced the 2014 forecasts for Turkey, and with regard to all of the other GDP projections we see a solid basis for the anticipated improvement in sentiment in the Eurozone and the CEE countries,” said Brezinschek the current growth projections.
While currencies and bonds in the Emerging Markets (EM) have returned to some stability recently, previous months were rocky. Hints about a reduction in the Fed’s bond buying programme in late May triggered major disruptions on EM markets. Since May, currencies such as the Indonesian rupee, the Brazilian real, the South African rand and the Turkish lira have lost 10 to15 percent of their value towards the Euro. CEE has not been at the centre of these developments. Even CEE countries with challenging fundamentals such as Hungary were not hit hard. Instead, Asian and Latin American countries suffered much more, according to Raiffeisen Bank Aval.
Yield increases in most CEE countries amounted to 50-100 basis points on 10-year maturities and were thus significantly lower compared to the other Emerging Markets, because the fundamental conditions (capital/current account balance) were better. “The outflows of capital only had a highly negative impact in Ukraine and Turkey. No easing can be expected to come from the overall global conditions, and thus long-term yields should remain at elevated levels until the first quarter. Accordingly, we take a positive view of LCY bonds for the next three to six months. The improvement in economic activity, however, should become clearly visible during the first half of 2014 and this will be reflected in further rises in equity indices,” said Brezinschek his outlook for the coming quarters.
As for CEE equity markets, Raiffeisen Research’s analysts are optimistic about a positive end to the year, thanks to the extremely attractive valuations and the fact that these asset prices have lagged behind so far. The improvement in economic activity, however, should become clearly visible during the first half of 2014 and this will be reflected in further rises in equity indices. Romania is the analyst’s favorite due to reform progress and ongoing privatizations. The price potential until mid-year for CEE indices is between 10 and 19 percent, according to Raiffeisen Bank Aval.
Discussion about this post