Erste Group Research - Microsoft Group Research ... We have thus revised our FY17 GDP figure only ... slump related to the anticipated correction in EU fund drawing after the dynamic

Erste Group Research – CEE Insights Fixed Income and Foreign Exchange Page 1

Erste Group Research CEE Insights | Fixed Income | Central and Eastern Europe 15 May 2017

CEE Insights

Fixed Income and Foreign Exchange

Looking ahead this week…

Monday Tuesday Wednesday Thursday Friday

SK: Inflation PL: Trade Balance

CEE: 1Q17 flash

GDP

PL: No rate change HR: Inflation

CZ: Producer Prices PL: Wages

PL: Industry, Retail Sales,

Producer Prices

Click for: this week’s detailed releases/events, market forecasts, macro forecasts

The upcoming week’s highlight is definitely on Tuesday, when Romania, the Czech Republic, Hungary, Slovakia and Poland will all release flash 1Q17 GDP numbers. We expect rather positive outcomes for all countries (for more details, see the ”On Radar” section below). Croatia and Slovakia will release inflation figures as well, for which we expect modest numbers, at around 1% y/y. The MPC meeting in Poland on Wednesday should be a non-event: the policy rate (currently at 1.5%) should remain unchanged, as inflation pressures have eased somewhat, despite our expectation of rather robust economic growth in 1Q17 (and for the full year in 2017).

In case you missed it last week…

-1.00

-0.50

0.00

0.50

1.00

1.50

CE

E

HR

CZ

HU

PL

RO

CE

E

HR

CZ

HU

PL

RO

SK SI

accrued interest FX gain/loss capital gain/loss TOTAL RETURN

LCY bonds* Eurobonds**

Polish rating outlook (A2) improved to stable by Moody’s

Industry surprised to upside in Slovakia (13.4% y/y), Czech Republic (10.9%), revised upwards in Hungary to 13.4%

Inflation surprised to downside in Czech Republic at 2.0% y/y, but core inflation continued to rise (to 2.4%)

NBS kept base rate at 4% as expected in Serbia

CZK got boost last week, likely due to CNB saying that weak koruna may make rate increases necessary

For other events last week, please check respective countries: HR, CZ, HU, PL, RO, TR, SI, SK, SR

On Radar

Growth in 1Q17 could have been quite upbeat in the CEE region. Romania should post the highest figure, with 4.5% y/y. The Romanian economy is very strongly driven by fiscal relaxation at the moment. Therefore, household consumption could have been the strongest contributor to the expansion. As for public investments, however, we are not so positive, as the unexpectedly good fiscal numbers in the first three months of the year could only have been achieved by drastically scaling back capital expenditures by the government. Poland is also worth mentioning, as we recently increased our forecast for the first quarter to 4% y/y (from our earlier call of 3.5%), based on strong monthly indicators. Both industry and retail sales surprised to the upside in March, backing the upward revision. Hungary, Slovakia and the Czech Republic could also have expanded by at least 3% y/y in the first quarter. On a general note for CEE, it is a good sign that industrial output seems to be catching up with the near-record levels in manufacturing PMIs throughout CEE. The latter have been posting rather high numbers for several months, but industry has somewhat lagged behind. The most recent industrial output data, however, finally showed the increase that the PMIs had already suggested. This is good news, as domestic demand has already been projected to increase, which usually also triggers growth in imports. However, with better manufacturing output, exports are likely to compensate for this to a large extent. This does not just mean higher growth, but also a better external balance situation. As for the outlook for subsequent quarters, imports are likely to increase, and this could mean at least some deterioration in current accounts in the region. The good news is that, in many cases, there is a current account surplus which could easily absorb any possible deterioration. Romania might be riskier in this regard, given its already negative current account balance and the ongoing, hefty fiscal easing, which could add to import growth. (For further details, see the next page.)



Robust manufacturing sentiment was finally followed by upbeat industrial output recently, pointing to a more balanced contribution to growth aside from domestic demand

GDP growth likely soared in first quarter ‘Can we say that GDP growth has been robust in CEE in 1Q17?’

Croatia: The available short-term data points to a vivid growth performance in 1Q17, with favorable trends continuing on both the internal and external fronts. We thus saw on average a 5.3% y/y stronger consumption profile, accompanied by a 2.1% y/y increase in industrial production and a double-digit performance on the trade balance side (21.5% y/y vs.11.5% y/y for exports and imports, respectively), allowing for a positive net export contribution. Bottom line, we see GDP growing in excess of 3+% in 1Q17, followed by a somewhat weaker footprint going into 2Q, accounting for the negative Agrokor effects feeding into the headline figure. Nevertheless, several positive factors, such as tourism support, a strong export profile and EU fund utilization point to a somewhat stronger than anticipated GDP profile (ex-Agrokor effect). We have thus revised our FY17 GDP figure only marginally downwards (0.2pp) to account for the Agrokor effect, which remains the main downside risk in 2017-18.

Czech Republic: We expect GDP growth to accelerate in 1Q17 (approx. 3% y/y). The cyclical position of the Czech economy is firm, as domestic demand remains solid and foreign demand has been improving since the turn of 2016/17. The former is supported by the low unemployment rate, positive sentiment of households and households’ (positive) expectations about the future economic development, whereas the latter is driven by the improved economic situation in the Eurozone. The uncertainty is associated mainly with government consumption growth, which was unexpectedly low in 4Q16 (0.0% y/y). Hungary: The Hungarian economy gained momentum in 1Q17, thanks to the favorable internal and external developments. GDP growth became more broad-based, since, besides the significant contribution of household consumption, gross fixed capital formation could have rebounded, based on the massive construction output volumes seen in 1Q17. We deem high-frequency external trade data a mixed bag, as exports were led by the firming of the Eurozone conjuncture, while imports were boosted by the unusually cold weather, the pick-up in investments and rising household demand. In addition to the growth-spurring factors, the low base also contributed to the annual growth figure’s strength. The annual GDP growth rate is projected to have reached 3.4% in 1Q17. Poland: We expect GDP growth to accelerate to 4% y/y in 1Q17 (slightly above the European Commission spring forecast of 3.5% y/y). Such an increase is mainly driven by the rapid growth of industrial production (11.1% y/y), which results from the activation of EU funds for 2014-20 and the base effect. Strong retail sales growth of 7.9% y/y also contributes to GDP growth. We still observe an increase of consumption, due to the 500+ social program, strong labor market and wage increase (5.2% y/y). We see GDP growing by around 3.9% annually in 2017. Romania: The latest macro figures suggest that Romania is on pace to deliver another steady increase of around 4.5% y/y in 1Q17. Industrial



production, retail sales and services for companies provided solid support, while construction most likely dragged on growth. On the expenditure side, private consumption may have remained the strongest growth driver, while foreign demand most likely held back the economic advance, as imports of goods and services outran exports. Serbia: The flash estimate of 1Q17 GDP growth came as a negative surprise, as the figure landed at a modest 1% y/y vs. 2.5% y/y in 4Q16 and the 2.6% y/y market consensus. While waiting for details on May 31, we see such a weak figure mainly as a result of the high base effect, strong fall in energy production in 1Q, stronger inflation figures and more modest contribution of net exports. We expect that the real growth figure should pick up in the coming quarters, supported by a strong consumption footprint, acceleration of investments and somewhat lower inflation figures throughout the year. As for the FY17 growth forecast, we are waiting for the final figures, but we see a potential downward revision of our current 3% y/y call.

Slovakia: The monthly indicators released so far suggest that the Slovak economy managed to keep its robust pace of growth at the start of this year. Retail sales, industrial production and the net export performance all point towards a brisk GDP growth rate of about 3.1% y/y in 1Q17. Domestic demand, in particular household consumption, likely remained the key growth driver. However, the net export contribution should also be non-negligible. Furthermore, a gradual return of investment after last year’s slump related to the anticipated correction in EU fund drawing after the dynamic 2015 should also positively contribute to the growth this year. Overall, we expect Slovak GDP growth at 3.1% this year.

Slovenia: In line with expectations, the short-term data revealed the growth focus switching towards domestic demand, namely consumption. On the retail trade side, we thus saw a robust 12.6% y/y increase in the first quarter of the year, followed by strong double-digit industrial production growth (10.6% y/y). Investments are also seen playing a more supportive role, as EU funds under the 2014-20 financial perspective gather momentum. External demand continued to push strongly (12% y/y in 1Q), though accelerating domestic demand drove up pressures on the import side, hence suggesting a marginally negative net export contribution. With the supportive short-term data in mind, we expect GDP to expand a few notches above the 3% level in 1Q17, while, given the firming domestic demand momentum, we see the risks as skewed to the upside for our 3.1% GDP forecast.



Looking ahead Date Time Country Indicator Period Survey Erste Est. Prev. Pre Comment

15. May RO Current Account Balance (monthly) Mar 204

15. May 9:00 SK CPI (y/y) Apr 0.9% 0.9% 1%Inflation should hover just below 1% y/y in April, as inflationary pressures are

working their way through only gradually

15. May 9:00 SK CPI (m/m) Apr 0.2% 0.2% -0.1% Compared to previous month, consumer prices are expected to inch up by 0.2%

15. May 14:00 PL Trade Balance Mar -110 -537

16. May 8:00 RO GDP (q/q) 1Q A 1.3% 1.4%

16. May 8:00 RO GDP (y/y) 1Q A 4.5% 4.8%

Local economy is expected to deliver more robust growth in 1Q17, mainly

supported by private consumption and higher growth in industry and services

sectors

16. May 9:00 CZ GDP (q/q) 1Q A 0.7% 1.5% 0.4%

We expect acceleration of GDP growth, as foreign demand strengthened at turn of

2016/17; moreover, government consumption and investment expenditures also

increased, in our view

16. May 9:00 CZ GDP (y/y) 1Q A 2.3% 3.0% 1.9%

GDP growth in y/y terms came in at approx. 3% in 1Q, in our view, as cyclical

position of Czech economy improved; both domestic and foreign demand

contributed positively to GDP growth

16. May 9:00 HU GDP (q/q) 1Q P 1.3% 1.5% 0.4%

16. May 9:00 HU GDP (y/y) 1Q P 3.3% 3.4% 1.6%Growth should rebound, thanks to low base and broad-based improvement in

underlying economic processes

16. May 9:00 SK GDP (y/y) 1Q P 3.1% 3.1% 3.0%Economy is expected to have kept robust pace of growth, supported by both

domestic and foreign demand

16. May 10:00 PL GDP (y/y) 1Q P 3.9% 4.0% 2.7%GDP growth in 1Q17 is epxected to accelerate more visibly, as strong construction

output growth suggests revival of investment

17. May PL Target Rate May 17 1.5% 1.5% 1.5% Easing inflation pressure supports stable policy rate

17. May 11:00 HR CPI (y/y) Apr 1.1% 1.1% April inflation seen remaining around 1% mark

17. May 11:00 HR CPI (m/m) Apr 0.3%

18. May 9:00 CZ PPI (y/y) Apr 2.9% 3.0% 3.0%Growth of PPI prices remained relatively high in y/y terms, due to solid domestic

demand, increasing wage costs and higher oil prices (compared with April 2016)

18. May 14:00 PL Wages (y/y) Apr 4.4% 5.2%

19. May RS Current Account Balance (monthly) Mar -115.4

19. May 10:30 SI PPI (y/y) Apr 1.9%

19. May 14:00 PL Industrial Production (y/y) Apr 1.9% 0.9% 11.1% Slow down due to calendar effect

19. May 14:00 PL Retail Sales (y/y) Apr 9.0% 8.8% 9.7%Increasing retail sales to be further supported by 500+ program and calendar

effects (Easter)

19. May 14:00 PL PPI (y/y) Apr 4.5% 4.7%

Sources: Bloomberg, Reuters



Major markets Last week, the European Commission published its economic ‘spring

forecast’ 2017. Based on previously encouraging economic data, the commission raised growth expectations for the Eurozone by 0.1%, to +1.6% for 2017. In accordance with the economic upswing, the commission also expects a slight decline of the Eurozone’s government debt ratio, from 91.3% to 90.3% for the end of 2017. This positive development is mainly being driven by Germany. By way of contrast, a further slight increase of the government debt ratio is expected for 2017 in France as well as in Italy. In both countries, below-average growth and below-average inflation development are the main reasons for the increase. In spite of impressive growth rates (approx. 3%), in Spain the commission expects only a marginal decline in the debt-to-GDP ratio for 2017.

For France, Italy and even Spain there is no way around the sustainable consolidation of public finances. In all three countries, the sustainable (structural) deficit is at an unaltered high of around 2-3% of GDP. Under these conditions, a reduction of the government debt ratio is hardly possible. However, so far almost all governments shy away from the urgently needed overhaul of the budget on the expenditure side. In some countries, it has recently been shown that the central government has too little control over the budgetary discipline of local federal states and other public institutions (e.g. health insurance organizations). However, this lax level of control might – depending on the economic development – sooner or later again lead to elevated political tension within the Eurozone.

Croatia

In the recently published EC spring forecast, Croatia’s GDP outlook was slightly reduced, amid potentially more pronounced risks regarding the Agrokor restructuring and hold-up on the border crossings, which could put pressure on the tourism sector. Despite the Agrokor related drag on growth, the EC still sees GDP expanding by a steady 2.9% in 2017 and slightly decelerating thereafter, i.e. closely aligned with our expectations (3.0%, down from 3.2%).

Preliminary results for the March trade balance showed another robust increase on the export side of 22% y/y, while imports also shifted into higher gear, expanding 12% y/y. Such developments led to a mild narrowing of trade on the annual level, while the export-import cover ratio stood at the 65% mark.

Markets showed a steady performance, with the exchange rate staying in a tight band in the middle of the 7.40-7.45 range, while yields on the bond market remained virtually flat, as the 2026 LCY curve still moves close to the 3% mark.

Gerald Walek [email protected]

Alen Kovac [email protected]

Ivana Rogic [email protected]



Czech Republic Retail sales without cars grew by 7.8% y/y in March, due to household

sentiment and the favorable development on the labor market. However, calendar effects and m/m volatility also affected the figure.

The trade balance (national concept) remained positive in March, reaching CZK 22.6bn, due to improved foreign demand.

Czech Prime Minister Bohuslav Sobotka recalled the government’s resignation three days after announcing it. The government crisis continues, with a fight among the president, PM and minister of finance. The effect on markets is limited, however.

Industrial production grew 10.5% y/y in March. A big part of the growth can be ascribed to the higher number of working days. The cleaned figure is smaller, but still positive (4.4% y/y).

The proportion of unemployed people between 15 and 65 years old declined to 4.4% y/y in April. The decrease in unemployment was associated with seasonal factors and high demand for workers from industry.

CPI inflation reached 2.0% y/y in April. The slower rate of price growth compared to March (2.6% y/y) was caused by declining food prices.

Hungary The headline CPI inflation rate slightly undershot expectations in April,

as the annual rate was 2.2% y/y. The deceleration of headline CPI inflation was due to base effects for the fuel component. Core inflation edged up to 1.9% y/y in April, indicating that there is gradual underlying inflationary pressure.

The external trade surplus amounted to EUR 956mn in March. The annual growth rate of exports in euro terms accelerated to 18.4%, while the growth rate of imports reached 21%. Overall, the trade surplus matched the amount seen in March 2016. In 1Q17, the external trade surplus amounted to EUR 2.47bn.

Construction output soared in March. Volumes grew 33.3% y/y and 3.4% m/m SWDA. Overall, in 1Q17, construction expanded 24.7% y/y.

Fitch was scheduled to update the country's BBB- rating on Friday. Neither the rating, nor the outlook (stable) were altered. This outcome was widely expected so we assume no reaction to the news.

Poland

The EURPLN held up relatively stable around 4.22 and the long end of the yield curve remained slightly below 3.5%; hence, we revised the EURPLN forecast to 4.25 for mid-2017 (from 4.32). We expect the zloty to remain strong as well at year-end (4.21 vs. the EUR).

The European Commission shifted up the GDP growth forecast to 3.5% in 2017, from 3.2%.

The Ministry of Labor expects unemployment to decrease further in April and hit an historically low value of 7.7%. The labor market has been tightening and we expect this trend to continue, resulting in moderate wage pressure.

David Navrátil [email protected]

Orsolya Nyeste [email protected]

Gergely Ürmössy [email protected]

Katarzyna Rzentarzewska [email protected]

mailto:[email protected]




Moody's removed the negative outlook attached to the A2 rating. The outlook was improved to stable. The agency cited reduced risks related to fiscal policy and abating concerns over the deterioration of the investment climate. Indeed, the budget deficit at 2.4% of GDP in 2016 was well below expectations (and the fiscal limit of 3% of GDP too) despite a substantial increase in social benefits.

Romania

Somewhat higher than expected price increases in fuels and natural gas drove monthly inflation slightly higher in April (0.28%) than we had initially estimated (0.2%). This put the annual figure up to 0.6%. It is, however, important to reiterate that one-off factors – such as repeated VAT cuts, the elimination of other taxes and fees, cheaper fuels, electricity and natural gas – have kept inflation at levels that are not fully in tune with the growing purchasing power. Administered prices are the only component that still act as an inflation suppressor, while all other items have turned into positive contributors.

Industrial production surprised to the upside in March (+8.2% y/y) in a strong sign that it will shape up as a sizable positive contributor to GDP formation in 1Q17. On the quarterly level, industrial output picked up to 6.7% q/q, from 2.2% in 4Q16, shored up by manufacturing and energy. Within manufacturing, production of capital goods was in the lead in 1Q17, accelerating to its fastest level since 3Q14.

Serbia

After landing at a relatively high 3.6% y/y in March, CPI continued to accelerate in April, as the figure moved to 4% y/y, above expectations. However, looking at the contributions, we can see that the main factor behind this acceleration is still coming from the rebound of fuel prices, while other categories showed stable developments.

Following the April inflation figure release, the NBS published wording from the rate setting meeting, where policy makers decided to keep the key rate unchanged at 4%, as they are keeping an eye on core inflation, which is still steadily moving around a relatively low 2% y/y level. Looking forward, given the upward inflation trajectory, rising wages, strong retail (indicating strong consumption demand) and gradual acceleration in lending activity, we see some room for a milder 25bp hike this year. However, we do not expect the NBS to move before December, when policy makers will have a clearer view on the number of FED hikes and future ECB policy stance from the beginning of 2018.

We saw no major changes on the bond market, with the benchmark RSD 2023 bond yield steadily moving around 5.7%, unchanged w/w. On the other hand, dinar gains continued, which prompted the NBS to intervene again with EUR 15mn on the buy side to tame intra-day volatility.

Dumitru Dulgheru

DumitruTeodor.Dulgheru @bcr.ro

Alen Kovac [email protected] Milan Deskar-Skrbic

[email protected]





Slovakia

Industrial production growth reached 13.4% y/y in March, above expectations. Compared to February, IP increased by 3.9% m/m. Car production rebounded from its sluggish growth in the previous months, growing by 12.8% y/y. Metal production and food processing followed. Construction production finally broke the spell of 12 months of continued declines and grew by 8.5% y/y in March (+3.5% m/m).

IP shifted up a gear in March, which could have been related to this year's timing of Easter (even though the data published by the Stats Office should be working day-adjusted). The strong IP and construction growth is a positive surprise that more than compensates for the disappointing performance in February, suggesting that the Slovak economy fared very well at the start of this year. We expect GDP to have increased by 3.1% y/y both in 1Q17 and for the full 2017 average.

Foreign trade dynamics sped up in March, as exports grew 16.5% y/y and imports increased 15.3% y/y. The foreign trade balance stood at EUR 376.8mn, in line with our forecast. We expect foreign trade to contribute positively to GDP growth, both in the first quarter of this year as well as for 2017 as a whole.

Slovenia

EC spring forecasts showed no major deviations vs. the autumn release, with the most pronounced change being the upward revision in the FY17 GDP figure by 0.3pp (to 3.3%), with domestic demand underlined as a key growth pillar on both the private consumption and investment sides. Looking at the strong 1Q figures, we are likely to revise our 3.1% GDP forecast for 2017 up by a few notches in the upcoming forecast update.

March short-term data revealed the continuation of positive developments – industrial production brought another strong figure, as it posted a 9.8% y/y increase, with the growth stemming from every sector of production. The trade balance also aligned with the favorable footprint, with both exports and imports rising at a similar growth pace, i.e. around 18% y/y.

Yields on bonds brought slight upward movements throughout the week, with the EUR 2027 edging up 10bp w/w, currently quoting around the 1.35% mark.

Katarina Muchova [email protected]

Alen Kovac [email protected]

Ivana Rogic [email protected]



Capital market forecasts

Government bond yields

current 2017Q2 2017Q3 2017Q4 2018Q1

Croatia 10Y 2.96 3.00 3.00 3.10 3.10

spread (bps) 254 251 238 237 228

Czech Rep. 10Y 0.89 0.80 0.84 0.83 0.88

spread (bps) 47 31 22 10 6

Hungary 10Y 3.06 3.60 3.67 3.67 3.67

spread (bps) 264 311 305 294 285

Poland 10Y 3.31 3.65 3.82 3.98 4.11

spread (bps) 289 316 320 325 329

Romania10Y 3.77 4.25 4.35 4.50 4.75

spread (bps) 335 376 373 377 393

Slovakia 10Y 1.07 1.20 1.23 1.25 1.35

spread (bps) 65 71 61 52 53

Slovenia 10Y 1.37 1.40 1.50 1.60 1.70

spread (bps) 95 91 88 87 88

Serbia 7Y 5.50 5.80 6.00 6.00 6.25

spread (bps) 508 531 538 527 543

DE10Y (BBG)* 0.42 0.49 0.62 0.73 0.82

3M Money Market Rate

current 2017Q2 2017Q3 2017Q4 2018Q1

Croatia 0.58 0.40 0.40 0.45 0.45

3M forwards - - - -

Czech Republic 0.30 0.27 0.27 0.26 0.26

3M forwards 0.37 0.42 0.50 0.59

Hungary 0.16 0.05 0.05 0.05 0.05

3M forwards 0.21 0.25 0.31 0.38

Poland 1.73 1.75 1.79 1.83 1.99

3M forwards 1.78 1.78 1.82 1.89

Romania 0.87 1.30 1.50 1.90 2.10

3M forwards 0.86 1.17 1.49 1.89

Serbia 3.55 3.60 3.80 4.00 4.00

3M forwards - - - -

Eurozone -0.33 -0.30 -0.30 -0.30 -0.30

FX

current 2017Q2 2017Q3 2017Q4 2018Q1

EURHRK 7.42 7.42 7.50 7.55 7.55

forwards 7.43 7.44 7.46 7.47

EURCZK 26.59 26.50 26.40 26.30 26.20

forwards 26.57 26.54 26.50 26.47

EURHUF 310.3 315.0 315.0 315.0 315.0

forwards 310.5 311.0 311.4 311.8

EURPLN 4.22 4.25 4.27 4.21 4.23

forwards 4.23 4.25 4.28 4.30

EURRON 4.55 4.57 4.60 4.62 4.65

forwards 4.55 4.56 4.58 4.60

EURRSD 123.2 124.0 124.5 124.5 124.5

forwards - - - -

EURUSD 1.09 1.08 1.10 1.12 1.12

Key Interest Rate

current 2017Q2 2017Q3 2017Q4 2018Q1

Croatia 0.50 0.30 0.30 0.30 0.30

Czech Republic 0.05 0.05 0.05 0.05 0.05

Hungary 0.90 0.90 0.90 0.90 0.90

Poland 1.50 1.50 1.50 1.50 1.75

Romania 1.75 1.75 1.75 1.75 1.75

Serbia 4.00 4.00 4.00 4.00 4.00

Eurozone 0.00 0.00 0.00 0.00 0.00

Macro forecasts

Real GDP growth (%) 2015 2016f 2017f 2018fCroatia 1.6 2.9 3.2 2.9Czech Republic 4.6 2.3 2.7 2.9Hungary 3.1 2.0 3.4 2.8Poland 3.6 2.8 3.3 3.4Romania 3.9 4.8 4.3 2.8Serbia 0.8 2.8 3.0 3.4Slovakia 3.8 3.3 3.1 3.7Slovenia 2.3 2.5 3.1 3.0CEE8 average 3.5 3.0 3.3 3.1

Average inflation (%) 2015 2016f 2017f 2018fCroatia -0.5 -1.1 1.5 1.9Czech Republic 0.3 0.7 2.7 1.9Hungary -0.1 0.4 2.5 3.4Poland -0.9 -0.6 1.8 1.9Romania -0.6 -1.5 1.4 2.7Serbia 1.4 1.1 2.4 3.1Slovakia -0.3 -0.5 1.0 2.0Slovenia -0.5 -0.1 1.6 2.0CEE8 average -0.4 -0.4 1.9 2.2

Unemployment (%) 2015 2016f 2017f 2018fCroatia 16.3 12.8 10.6 9.4Czech Republic 5.1 4.1 3.6 3.6Hungary 6.8 5.1 4.3 4.1Poland 10.6 8.9 7.9 7.7Romania 6.8 6.0 5.9 5.8Serbia 17.7 16.0 14.1 12.8Slovakia 11.5 9.7 8.7 7.8Slovenia 9.0 7.9 7.4 6.9CEE8 average 9.3 7.7 6.9 6.6

Public debt (% of GDP) 2015 2016f 2017f 2018fCroatia 86.7 84.0 81.6 79.2Czech Republic 40.3 37.2 35.7 35.9Hungary 74.7 74.3 74.0 72.5Poland 51.5 54.3 54.9 54.1Romania 37.9 37.1 39.2 40.8Serbia 74.7 72.9 69.4 68.9Slovakia 52.5 51.9 51.7 50.9Slovenia 83.4 79.2 77.9 75.9CEE8 average 53.7 53.6 53.5 53.0

C/A (%GDP) 2015 2016f 2017f 2018fCroatia 5.1 2.9 2.4 1.5Czech Republic 0.9 2.1 1.2 1.4Hungary 3.4 4.9 4.1 3.8Poland -0.2 -0.3 -0.6 -0.9Romania -1.2 -2.4 -3.3 -3.8Serbia -4.8 -4.2 -4.6 -4.8Slovakia -1.3 0.1 1.2 2.7Slovenia 5.2 6.8 6.4 5.8CEE8 average 0.4 0.6 0.2 0.0

Budget Balance (%GDP) 2015 2016f 2017f 2018fCroatia -3.2 -1.4 -1.6 -1.6Czech Republic -0.4 0.5 -0.6 -0.6Hungary -2.0 -2.2 -2.7 -2.5Poland -2.5 -2.7 -3.0 -2.9Romania -0.8 -2.8 -3.5 -3.6Serbia -3.8 -1.4 -1.2 -1.0Slovakia -2.7 -1.7 -1.5 -1.2Slovenia -2.9 -2.0 -1.7 -1.5CEE8 average -2.0 -2.0 -2.4 -2.3

Note:*Information on past performance is not a reliable indicator for future performance. Forecasts are not a reliable indicator for future performance.



Appendix

0

1

2

3

4

5

6

7

8

Apr-

12

Jul-1

2

Oct-

12

Jan-1

3

Apr-

13

Jul-1

3

Oct-

13

Jan-1

4

Apr-

14

Jul-1

4

Oct-

14

Jan-1

5

Apr-

15

Jul-1

5

Oct-

15

Jan-1

6

Apr-

16

Jul-1

6

Oct-

16

Jan-1

7

Apr-

17

ZIBOR3M Croatia 5Y

0

0.5

1

1.5

2

2.5

3

3.5

4

Apr-

12

Jul-1

2

Oct-

12

Jan-1

3

Apr-

13

Jul-1

3

Oct-

13

Jan-1

4

Apr-

14

Jul-1

4

Oct-

14

Jan-1

5

Apr-

15

Jul-1

5

Oct-

15

Jan-1

6

Apr-

16

Jul-1

6

Oct-

16

Jan-1

7

Apr-

17

PRIB03M Czech Rep. 10Y

0

1

2

3

4

5

6

7

8

9

10

Apr-

12

Jul-1

2

Oct-

12

Jan-1

3

Apr-

13

Jul-1

3

Oct-

13

Jan-1

4

Apr-

14

Jul-1

4

Oct-

14

Jan-1

5

Apr-

15

Jul-1

5

Oct-

15

Jan-1

6

Apr-

16

Jul-1

6

Oct-

16

Jan-1

7

Apr-

17

BUBOR03M Hungary 10Y

0

1

2

3

4

5

6

Apr-

12

Jul-1

2

Oct-

12

Jan-1

3

Apr-

13

Jul-1

3

Oct-

13

Jan-1

4

Apr-

14

Jul-1

4

Oct-

14

Jan-1

5

Apr-

15

Jul-1

5

Oct-

15

Jan-1

6

Apr-

16

Jul-1

6

Oct-

16

Jan-1

7

Apr-

17

WIBO3M Poland 10Y

0

1

2

3

4

5

6

7

Fe

b-1

3

Ma

y-1

3

Aug

-13

Nov-1

3

Fe

b-1

4

Ma

y-1

4

Aug

-14

Nov-1

4

Fe

b-1

5

Ma

y-1

5

Aug

-15

Nov-1

5

Fe

b-1

6

Ma

y-1

6

Aug

-16

Nov-1

6

Fe

b-1

7

Ma

y-1

7

BUBR3M Romania 5Y

0

2

4

6

8

10

12

Apr-

13

Jun-1

3

Aug

-13

Oct-

13

Dec-1

3

Fe

b-1

4

Apr-

14

Jun-1

4

Aug

-14

Oct-

14

Dec-1

4

Fe

b-1

5

Apr-

15

Jun-1

5

Aug

-15

Oct-

15

Dec-1

5

Fe

b-1

6

Apr-

16

Jun-1

6

Aug

-16

Oct-

16

Dec-1

6

Fe

b-1

7

Apr-

17

BELI3M Serbia 10Y

-1

0

1

2

3

4

5

6

7

8

Ap

r-1

2

Jul-

12

Oct

-12

Jan

-13

Ap

r-1

3

Jul-

13

Oct

-13

Jan

-14

Ap

r-1

4

Jul-

14

Oct

-14

Jan

-15

Ap

r-1

5

Jul-

15

Oct

-15

Jan

-16

Ap

r-1

6

Jul-

16

Oct

-16

Jan

-17

Ap

r-1

7

EUR003M Slovakia 10Y Slovenia 10Y

Note:*Information on past performance is not a reliable indicator for future performance. Forecasts are not a reliable indicator for future performance.



Contacts Group Research Head of Group Research

Friedrich Mostböck, CEFA +43 (0)5 0100 11902 Major Markets & Credit Research Head: Gudrun Egger, CEFA +43 (0)5 0100 11909 Ralf Burchert, CEFA (Agency Analyst) +43 (0)5 0100 16314 Hans Engel (Senior Analyst Global Equities) +43 (0)5 0100 19835 Christian Enger, CFA (Covered Bonds) +43 (0)5 0100 84052 Margarita Grushanina (Economist AT, Quant Analyst) +43 (0)5 0100 11957 Peter Kaufmann, CFA (Corporate Bonds) +43 (0)5 0100 11183 Stephan Lingnau (Global Equities) +43 (0)5 0100 16574 Carmen Riefler-Kowarsch (Covered Bonds) +43 (0)5 0100 19632 Rainer Singer (Senior Economist Euro, US) +43 (0)5 0100 17331 Bernadett Povazsai-Römhild (Corporate Bonds) +43 (0)5 0100 17203 Elena Statelov, CIIA (Corporate Bonds) +43 (0)5 0100 19641 Gerald Walek, CFA (Economist Euro, CHF) +43 (0)5 0100 16360 Macro/Fixed Income Research CEE Head CEE: Juraj Kotian (Macro/FI) +43 (0)5 0100 17357 Zoltan Arokszallasi, CFA (Fixed income) +43 (0)5 0100 18781 Katarzyna Rzentarzewska (Fixed income) +43 (0)5 0100 17356 CEE Equity Research Head: Henning Eßkuchen +43 (0)5 0100 19634 Daniel Lion, CIIA (Technology, Ind. Goods&Services) +43 (0)5 0100 17420 Christoph Schultes, MBA, CIIA (Real Estate) +43 (0)5 0100 11523 Vera Sutedja, CFA, MBA (Telecom, Steel) +43 (0)5 0100 11905 Thomas Unger, CFA (Banks, Insurance) +43 (0)5 0100 17344 Vladimira Urbankova, MBA (Pharma) +43 (0)5 0100 17343 Martina Valenta, MBA +43 (0)5 0100 11913 Editor Research CEE Brett Aarons +420 956 711 014 Research Croatia/Serbia Head: Mladen Dodig (Equity) +381 11 22 09178 Head: Alen Kovac (Fixed income) +385 72 37 1383 Anto Augustinovic (Equity) +385 72 37 2833 Milan Deskar-Skrbic (Fixed income) +385 72 37 1349 Magdalena Dolenec (Equity) +385 72 37 1407 Ivana Rogic (Fixed income) +385 72 37 2419 Davor Spoljar, CFA (Equity) +385 72 37 2825 Research Czech Republic

Head: David Navratil (Fixed income) +420 956 765 439 Head: Petr Bartek (Equity) +420 956 765 227 Vit Machacek (Fixed income) +420 956 765 456 Jiri Polansky (Fixed income) +420 956 765 192 Roman Sedmera (Fixed income) +420 956 765 391 Michal Skorepa (Fixed income) +420 956 765 172 Pavel Smolik (Equity) +420 956 765 434 Jan Sumbera (Equity) +420 956 765 218 Research Hungary Head: József Miró (Equity) +361 235 5131 Gergely Ürmössy (Fixed income) +361 373 2830 András Nagy (Equity) +361 235 5132 Orsolya Nyeste (Fixed income) +361 268 4428 Tamás Pletser, CFA (Oil&Gas) +361 235 5135 Research Poland Head: Tomasz Duda (Equity) +48 22 330 6253 Marek Czachor (Equity) +48 22 330 6254 Magdalena Komaracka, CFA (Equity) +48 22 330 6256 Mateusz Krupa (Equity) +48 22 330 6251 Karol Brodziński (Equity) +48 22 330 6252 Research Romania Head: Mihai Caruntu (Equity) +40 3735 10427 Head: Dumitru Dulgheru (Fixed income) +40 3735 10433 Chief Analyst: Eugen Sinca (Fixed income) +40 3735 10435 Dorina Ilasco (Fixed Income) +40 3735 10436 Research Slovakia Head: Maria Valachyova, (Fixed income) +421 2 4862 4185 Katarina Muchova (Fixed income) +421 2 4862 4762

Treasury - Erste Bank Vienna

Group Markets Retail Sales Head: Christian Reiss +43 (0)5 0100 84012 Markets Retail a. Sparkassen Sales AT Head: Markus Kaller +43 (0)5 0100 84239 Equity a. Fund Retail Sales Head: Kurt Gerhold +43 (0)5 0100 84232 Fixed Income a. Certificate Sales Head: Uwe Kolar +43 (0)5 0100 83214 Markets Corporate Sales AT Head: Christian Skopek +43 (0)5 0100 84146

Fixed Income Institutional Sales

Group Markets Financial Institutions Head: Manfred Neuwirth +43 (0)5 0100 84250 Bank and Institutional Sales Head: Jürgen Niemeier +49 (0)30 8105800 5503 Institutional Sales Western Europe AT, GER, FRA, BENELUX Head: Thomas Almen +43 (0)5 0100 84323 Charles-Henry de Fontenilles +43 (0)5 0100 84115 Marc Pichler +43 (0)5 0100 84118 Rene Klasen +49 (0)30 8105800 5521 Dirk Seefeld +49 (0)30 8105800 5523 Bernd Bollhof +49 (0)30 8105800 5525 Bank and Savingsbanks Sales Head: Marc Friebertshäuser +49 (0)711 810400 5540 Sven Kienzle +49 (0)711 810400 5541 Michael Schmotz +43 (0)5 0100 85542 Ulrich Inhofner +43 (0)5 0100 85544 Klaus Vosseler +49 (0)711 810400 5560 Andreas Goll +49 (0)711 810400 5561 Mathias Gindele +49 (0)711 810400 5562 Institutional Sales CEE and International Head: Jaromir Malak +43 (0)5 0100 84254 Central Bank and International Sales Head: Margit Hraschek +43 (0)5 0100 84117 Christian Kössler +43 (0)5 0100 84116 Bernd Thaler +43 (0)5 0100 84119 Institutional Sales PL and CIS Pawel Kielek +48 22 538 6223 Michal Jarmakowicz (Fixed Income) +43 50100 85611 Institutional Sales Slovakia Head: Peter Kniz +421 2 4862 5624 Sarlota Sipulova +421 2 4862 5619 Monika Smelikova +421 2 4862 5629 Institutional Sales Czech Republic Head: Ondrej Cech +420 2 2499 5577 Milan Bartos +420 2 2499 5562 Barbara Suvadova +420 2 2499 5590 Institutional Asset Management Sales Czech Republic Head: Petr Holecek +420 956 765 453 Martin Perina +420 956 765 106 Petr Valenta +420 956 765 140 David Petracek +420 956 765 809 Institutional Sales Croatia Head: Antun Buric +385 (0)7237 2439 Željko Pavičić +385 (0)7237 1494 Ivan Jelavic +385 (0)7237 1638 Institutional Sales Hungary

Attila Hollo +36 1 237 8209 Borbala Csizmadia +36 1 237 8205 Institutional Sales Romania Head: Ciprian Mitu +43 (0)50100 85612 Stefan Mortun Racovita +40 373 516 531 Business Support Tamara Fodera +43 (0)50100 12614 Bettina Mahoric +43 (0)50100 86441



Disclaimer This publication was prepared by Erste Group Bank AG or any of its consolidated subsidiaries (together with consolidated subsidiaries "Erste Group") independently and objectively as other information pursuant to the Circular of the Austrian Financial Market Authority regarding information including marketing communication pursuant to the Austrian Securities Supervision Act. This publication serves interested investors as additional source of information and provides general information, information about product features or macroeconomic information without emphasizing product selling marketing statements. This publication does not constitute marketing communication pursuant to Art. 36 (2) Austrian Securities Supervision Act as no direct buying incentives were included in this publication, which is of information character. This publication does not constitute investment research pursuant to § 36 (1) Austrian Securities Supervision Act. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and it is not subject to the prohibition on dealing ahead of the dissemination of investment research. The information only serves as non-binding and additional information and is based on the level of knowledge of the person in charge of drawing up the information on the respective date of its preparation. The content of the publication can be changed at any time without notice. This publication does not constitute or form part of, and should not be construed as, an offer, recommendation or invitation to subscribe for or purchase any securities, and neither this publication nor anything contained herein shall form the basis of or be relied on in connection with or act as an inducement to enter into any contract or inclusion of a security or financial product in a trading strategy. Information provided in this publication are based on publicly available sources which Erste Group considers as reliable, however, without verifying any such information by independent third persons. While all reasonable care has been taken to ensure that the facts stated herein are accurate and that the forecasts, opinions and expectations contained herein are fair and reasonable, Erste Group (including its representatives and employees) neither expressly nor tacitly makes any guarantee as to or assumes any liability for the up-to-dateness, completeness and correctness of the content of this publication. Erste Group may provide hyperlinks to websites of entities mentioned in this document, however the inclusion of a link does not imply that Erste Group endorses, recommends or approves any material on the linked page or accessible from it. Neither a company of Erste Group nor any of its respective managing directors, supervisory board members, executive board members, directors, officers of other employees shall be in any way liable for any costs, losses or damages (including subsequent damages, indirect damages and loss of profit) howsoever arising from the use of or reliance on this publication. Any opinion, estimate or projection expressed in this publication reflects the current judgment of the author(s) on the date of publication of this document and do not necessarily reflect the opinions of Erste Group. They are subject to change without prior notice. Erste Group has no obligation to update, modify or amend this publication or to otherwise notify a reader thereof in the event that any matter stated herein, or any opinion, projection, forecast or estimate set forth herein, changes or subsequently becomes inaccurate. The past performance of securities or financial instruments is not indicative for future results. No assurance can be given that any financial instrument or issuer described herein would yield favorable investment results or that particular price levels may be reached. Forecasts in this publication are based on assumptions which are supported by objective data. However, the used forecasts are not indicative for future performance of securities or financial instrument. Erste Group, its affiliates, principals or employees may have a long or short position or may transact in the financial instrument(s) referred to herein or may trade in such financial instruments with other customers on a principal basis. Erste Group may act as a market maker in the financial instruments or companies discussed herein and may also perform or seek to perform investment services for those companies. Erste Group may act upon or use the information or conclusion contained in this publication before it is distributed to other persons. This publication is subject to the copyright of Erste Group and may not be copied, distributed or partially or in total provided or transmitted to unauthorized recipients. By accepting this publication, a recipient hereof agrees to be bound by the foregoing limitations. © Erste Group Bank AG 2017. All rights reserved. Published by:

Erste Group Bank AG Group Research 1100 Vienna, Austria, Am Belvedere 1 Head Office: Wien Commercial Register No: FN 33209m Commercial Court of Vienna

Erste Group Homepage: www.erstegroup.com

http://www.erstegroup.com/

Documents

Erste Group Research - Microsoft Group Research ... We have thus revised our FY17 GDP figure only ... slump related to the anticipated correction in EU fund drawing after the dynamic