Impact of economic crises on CEE economies
ERES Industry Seminar
UniCredit Bank Slovakia
Jan Toth
Chief Economist
26 March 2010
Global pictures
 Key Western European markets
 Price pressures vs. economic cycle
 Interest rates
 Soft indicators
2
Openness of the economy (export+import as % of GDP)
Slovakia is extremely small open economy, depended on foreign demand
180%
161%
160%
168%
149%
140%
113%
% z HDP
120%
100%
83%
88%
80%
60%
40%
55%
58%
FR
IT
31%
20%
0%
US
3
Zdroj: Eurostat (2008)
PL
DE
AT
CZ
HU
SK
4
Q1 06
Q2 06
Q3 06
Q4 06
Q1 07
Q2 07
Q3 07
Q4 07
Q1 08
Q2 08
Q3 08
Q4 08
Q1 09
Q2 09
Q3 09
Q4 09
Q1 10f
Q2 10f
Q3 10f
Q4 10f
Q1 11f
Q2 11f
Q3 11f
Q4 11f
Economic growth in European biggest economies
Germany in deepest recession (share of industry is the biggest)
DE
FR
IT
6
4
2
0
-2
-4
-6
-8
Cash for clunkers – mostly gone by 1H10
5
(Core) inflationary pressures should remain low
Eurozone Core CPI vs. Output Gap
6
Less important energy and food prices could increase. Source: Capital Economics
Broader Money does not grow despite printing press
7
Source: Capital Economics
Short-term interest rates, forecasts
ECB - Later to cut rates, later to increase rates
5
4
3
2
1 Month
3 Month
6 Month
1
Key Rate
8
Source: UniCredit
I-12
VII-11
I-11
VII-10
I-10
VII-09
I-09
VII-08
I-08
VII-07
I-07
VII-06
I-06
VII-05
I-05
VII-04
I-04
VII-03
I-03
VII-02
I-02
VII-01
I-01
VII-00
I-00
VII-99
I-99
0
Long-term interest rates in eurozone
German 10-yr government bonds, yield curve should become less steep
8,7
7,7
6,7
5,7
4,7
3,7
2,7
10Y BUnds
1,7
2Y Bunds
Source: UniCredit
9
I-12
I-11
I-10
I-09
I-08
I-07
I-06
I-05
I-04
I-03
I-02
I-01
I-00
I-99
I-98
I-97
I-96
I-95
I-94
I-93
I-92
I-91
I-90
0,7
“Soft” indicators point to stronger 2Q10
Eurozone (esp. Germany) enjoys industrial production revival
10
Source: Capital Economics
VI.08
VII.08
VIII.08
IX.08
X.08
XI.08
XII.08
I.09
II.09
III.09
IV.09
V.09
VI.09
VII.09
VIII.09
IX.09
X.09
XI.09
XII.09
I.10
II.10
III.10
IV.10
V.10
VI.10
VII.10
VIII.10
IX.10
Slovak example - zoomed on recent data
11
15%
IFO Exp. (normalized)
10%
ZEW (normalized)
5%
Slovak Manufacturing (ex-auto)
0%
-5%
-10%
-15%
-20%
-25%
“Soft” indicators point to still low levels of stocks compared to
orders
The ratio signals that “recovery” is not over yet
63
1,4
60
1,3
57
1,2
54
1,1
51
1,0
48
0,9
45
0,8
42
39
36
33
VI.97
12
Source: UniCredit
0,7
Mfg PMI - LS
0,6
New Orders-to-Stock Ratio - RS
0,5
XII.99
VI.02
XII.04
VI.07
XII.09
CEE economies
 Living standards
 Growth forecasts and investments
 Euro adoption had negative short-term impact
 Polish and Hungarian labour force cheap vis-à-vis neighbours
 Recession was the deepest in Slovakia, but recovery swift
 Large fiscal deficits could push tax rates higher after elections
13
Living standards in historical perspective ( EU15=100% )
Living standards catch-up stalled during global crisis
80
70
60
50
40
30
Bulgaria
Hungary
Poland
Romania
Slovakia
2011F
2010F
2009e
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
Czech Republic
Source: Eurostat. February 2010.
14
1996
1995
1994
1993
1992
1991
20
CEE growth
Poland was best off in 2009 due to smaller export share
11
10
9
8
7
6
5
4
3
2
1
0
-1
-2
-3
-4
-5
-6
-7
-8
10,6
8,5
6,7
4,8
5,0
1,6
3,8
3,1
2,42,72,7
2,3
-0,3
Czech Republic
Hungary
Poland
Slovak Republic
-4,7
2003
15
6,2
2004
2005
2006
2007
2008
2009
2010f
2011f
CE4 growth and investments – Czech R & Slovakia
Czech Republic - Y-o-Y
15,0
6,8 6,1
GDP
2,5
1,6
Investments
10,0
3,5 3,5
5,0
2,4 3,1 3,3
0,0
-5,0
-4,3
-10,0
1,15
1,10
1,05
1,00
0,95
0,90
0,85
0,80
6,0
3,0
0,0
10,6
16
0,95
0,90
0,85
GDP
Investments
0,80
Slovakia - 2008=1
GDP
15,0
10,0
Investments
6,2
4,3
3,1 3,8
2,2
5,0 5,0
4,0
0,0
-5,0
-4,7
20
06
20
07
20
08
20
09
20
10
F
20
11
F
20
12
F
20
13
F
20
14
F
20
15
F
-3,0
-6,0
8,5
1,00
-10,0
-15,0
1,20
1,15
1,10
1,05
1,00
0,95
0,90
0,85
0,80
GDP
Investments
20
06
20
07
20
08
20
09
20
10
F
20
11
F
20
12
F
20
13
F
20
14
F
20
15
F
Slovakia - Y-o-Y
12,0
9,0
1,05
20
06
20
07
20
08
20
09
20
10
F
20
11
F
20
12
F
20
13
F
20
14
F
20
15
F
20
06
20
07
20
08
20
09
20
10
F
20
11
F
20
12
F
20
13
F
20
14
F
20
15
F
8,0
6,0
4,0
2,0
0,0
-2,0
-4,0
-6,0
Czech Republic - 2008=1
1,20
1,15
1,10
1,05
1,00
0,95
0,90
0,85
0,80
CE4 growth and investments – Poland & Hungary
Poland - Y-o-Y
6,2
GDP
6,8
4,9
Investments
4,2
2,6
4,0 3,5
2,7
1,7
20,0
1,30
1,20
15,0
1,20
1,10
10,0
1,10
1,00
1,00
0,90
5,0
3,4
0,0
-5,0
GDP
0,90
Investments
0,80
0,80
0,70
20
06
20
07
20
08
20
09
20
10
F
20
11
F
20
12
F
20
13
F
20
14
F
20
15
F
20
06
20
07
20
08
20
09
20
10
F
20
11
F
20
12
F
20
13
F
20
14
F
20
15
F
8,0
7,0
6,0
5,0
4,0
3,0
2,0
1,0
Poland - 2008=1
Hungary - Y-o-Y
Hungary - 2008=1
1,20
0,9
0,7
-0,3
17
15,0
3,510,0
5,0
0,0
-6,5
1,10
1,05
GDP
Investments
1,00
0,95
-5,0
-10,0
0,90
20
06
20
07
20
08
20
09
20
10
F
20
11
F
20
12
F
20
13
F
20
14
F
20
15
F
4,1
Investments
4,0 3,5
2,7 3,4
20
06
20
07
20
08
20
09
20
10
F
20
11
F
20
12
F
20
13
F
20
14
F
20
15
F
6,0
4,0
2,0
0,0
-2,0
-4,0
-6,0
-8,0
GDP
1,15
1,10
1,05
1,00
0,95
0,90
Interest rate premium ( vs. German government, 10 yrs, in % )
Slovakia benefits due to euro adoption, but Czech R is close second
5,0
4,9
4,5
4,3
4,0
3,5
today (10Y)
3,3
before crisis (10Y)
3,0
today (1Y)
2,4
2,5
2,0
1,5
1,0
1,1
0,9
1,0
0,5
0,3
0,0
Slovakia
18
Czech R
Poland
Hungary
Hourly (total) labour costs in manufacturing (EUR)
Slovakia got sharply more expensive in relative terms
1996
2008
Mar-10
% of CE4 avg % of EU15 avg
Czech Republic
Hungary
Poland
Slovakia
2.6
2.7
2.7
2.3
8,6
7,0
7,0
7,3
8,9
6,8
6,7
7,5
119,1
90,8
89,2
100,9
29,9
22,8
22,4
25,3
CE4 average
Old EU15 avg.
2.6
19.4
7,5
29,4
7,5
29,7
100,0
28,9
25,1
100,0
Germany
24.8
32,7
32,6
33,1
109,8
Note: Labour costs include all costs borne by an employer. CE exports mainly consist of industrial goods. The average
annual increase for CE costs was 8.5% in 1996-2006 period while it was 3% for EU15 and 1.7% for Germany.
Source: 1996 -2008 is EUROSTAT data, the rest is an estimate. The latest data based on present exchange rates.
19
% premium/discount to CE4 average
Slovakia cannot react to slowdown via exchange rate, becomes more expensive
25%
% deviation from CE average
20%
15%
10%
6%
5%
1%
0%
-2%
-5%
-10%
-15%
-5%
-7%
-12%
-10%
-10%
-14%
-14%
-16%
-20%
-22% -22%
-25%
96
97
98
99
00
01
Czech R
20
-12%
-14%
02
03
Hungary
04
Poland
05
06
Slovakia
07
08
09
III.10
Industry (manufacturing, s.a., July 2008 = 100)
Slovakia was hit the hardest, but stronger recovery
1,05
EU-15
Hungary
Czech Republic
Poland
Germany
Slovakia
1,02
1,00
0,95
0,94
0,93
0,90
0,89
0,88
0,85
0,85
0,80
21
Source: Eurostat, UniCredit calculation
0
I.1
XI
.0
9
XI
I.0
9
X.
09
09
IX
.
VI
.0
9
VI
I.0
9
VI
II.
09
V.
09
09
IV
.
09
III
.
9
II.
0
9
I.0
XI
.0
8
XI
I.0
8
X.
08
IX
.
08
0,75
Construction (sept 2008 = 100, seas. adjusted, 3M MA)
Slovakia was the most hit, Hungary 2nd worst
1,10
1,05
1,04
1,00
0,95
0,94
0,90
0,89
0,85
0,80
Czech Republic
Hungary
Poland
0,77
Slovakia
22
Source: Eurostat, UniCredit calculation
0
I.1
XI
.0
9
XI
I.0
9
X.
09
09
IX
.
VI
.0
9
VI
I.0
9
VI
II.
09
V.
09
09
IV
.
09
III
.
9
II.
0
9
I.0
XI
.0
8
XI
I.0
8
X.
08
IX
.
08
0,75
Real estate construction (sept 2008 = 100, seas. adjusted, 3M MA)
Slovakia and Hungary was the most hit
1,00
0,96
0,95
0,90
0,88
0,85
0,80
0,78
Czech Republic
Hungary
Poland
Slovakia
0,75
23
Source: Eurostat, UniCredit calculation
0
I.1
XI
.0
9
XI
I.0
9
X.
09
09
IX
.
VI
.0
9
VI
I.0
9
VI
II.
09
V.
09
09
IV
.
09
III
.
9
II.
0
9
I.0
XI
.0
8
XI
I.0
8
X.
08
IX
.
08
0,75
Construction - survey on current orders (s.a.)
Orders still very low
10
Czech Republic
Hungary
Poland
Slovakia
0
-10
-20
-30
-40
-50
-60
-70
24
Source: Eurostat
I.10
X.09
VII.09
IV.09
I.09
X.08
VII.08
IV.08
I.08
X.07
VII.07
IV.07
I.07
X.06
VII.06
IV.06
I.06
-80
Retail sales (w/o cars, 2008 average = 100)
Slovakia was hit the hardest, 10% below average 2008 level
1,05
1,03
1,01
0,99
0,97
0,95
EU15
CZ
DE
HU
PL
SK
0,93
0,91
0,89
Source: Eurostat, UniCredit calculation
25
I.10
XII.09
XI.09
X.09
IX.09
VIII.09
VII.09
VI.09
V.09
IV.09
III.09
II.09
I.09
XII.08
XI.08
X.08
IX.08
0,87
GDP output (pre-crisis level 100%, quarterly development, s.a.)
Slovakia was the most hit, but strongly rebounds
1,04
1,03
1,02
1,00
0,98
0,97
0,96
0,96
0,95
0,94
0,92
Czech Republic
Hungary
Poland
Slovakia
0,90
2008Q04
Source: Eurostat
26
2009Q01
2009Q02
2009Q03
2009Q04
Unemployment (an increase since the start of the crisis, s.a.)
Slovakia was the most hit
5,0
4,9
4,5
Czech Republic
Hungary
Poland
Slovakia
4,0
3,9
3,5
3,3
3,0
2,5
2,1
2,0
1,5
1,0
0,5
Source: Eurostat
27
0
I.1
9
XI
I.0
XI
.0
9
X.
09
09
IX
.
9
VI
II.
09
VI
I.0
VI
.0
9
V.
09
09
IV
.
09
III
.
9
II.
0
9
I.0
XI
.0
8
XI
I.0
8
X.
08
IX
.
08
0,0
EUR race, no quick euro candidate in CE3
Slovak neighbors will continue to have floating exchange rate
Pre-euro ERMII entry
Euro adoption date
Slovakia
2H05-2008
2009
Estonia
2004-2010
2011
2004-2013
2004-2013
Currency board to 2013
2014
2014
2014
Hungary
2012-2014
2015
Poland
2013-2015
2016
Czech Republic
2015-2017
2018
Latvia
Lithuania
Bulgaria
28
Source: UniCredit, Barclays
On-going hope for CEE
 Faced with a short-term deflationary/disinflationary
environment, global corporations will lack pricing power and
will have to work aggressively on costs to support the bottom
line. This will continue to have important implications for CEE
markets that have benefited from off-shoring.
 In terms of the geographic location of production such
pressures could end up producing more not less off-shoring
 Potential threat: due to high fiscal deficit numbers, taxes could
be increased in the future
29
Contacts
30
 Jaroslav Habo
Tel: +421 2 4950 4319
E-mail: jaroslav.habo@unicreditgroup.sk
Large and multinationals
 František Doležal
Tel: +421 2 4950 2272
E-mail: frantisek.dolezal@unicreditgroup.sk
Mid segment
 Marian Burian
Tel: +421 2 4950 3207
E-mail: marian.burian@unicreditgroup.sk
SME clients
 Margita Slaninková
Tel: +421 2 4950 2271
E-mail: greta.slaninkova@unicreditgroup.sk
Real Estate Financing
 Ján Tóth
Tel: +421 2 4950 2267
E-mail: jan.toth@unicreditgroup.sk
Research
 David Derenik
Tel: +421 2 4950 2368
E-mail: david.derenik@unicreditgroup.sk
Research – Real Estate