Outlook for Central and Eastern Europe 02/2010

Czech Republic
The economy is slowly returning to growth while inflation remains subdued. The central bank will keep a wait-and-see attitude until at least the end of the year. 

Hungary
The Central bank released the new Inflation Report and adjusted its forecasts from November. On inflation, they raised the 2010 inflation forecast to 4.4% from 3.9% previously, so something really changed their mind since November. Higher taxes, energy price and the January figure could be the reasons for the change of mind, so the usual stuff in this country: the government simply cheats the central bank on inflation. Luckily, the base rate is not set with respect to the inflation outlook, but based on the market's appetite for HUF risk, so higher inflation outlook does not have any significant effect on the yield curve or the interest rate outlook. 

Poland
Polish labour market is in slightly better shape than we expected. Despite a harsh winter and higher share of people being employed in construction, there was only a moderate decrease in employment at the beginning of the year. Nevertheless even the moderate deterioration on the labour market starts to weigh on the domestic consumption. As we expected the dynamics of retail sales fell pretty sharply in January and the growth should more rely on exports and investments in the first half of the year. 

Slovakia
The economy slowed down its decline to -2.7% Y/Y in the final quarter 2009 according to flash estimate. The whole year drop should be around -4.7% Y/Y. The outlook for 2010 is more favourable with estimates in the range of 2.0% - 3.0%.