Outlook for Central and Eastern Europe 11/2010

Czech Republic
Economic growth accelerated in the third quarter to 3% Y/Y, driven by rising exports, while domestic demand remains subdued. Inflation remains moderate and does not force the central bank to change its interest rates. Crown remains in a narrow band below 25 EUR / CZK. 

Hungary
Debate about Hungary remained centered about the medium-term fiscal outlook as one-off revenue measures (special taxes on the financial, energy, retail and telecom sectors) will expire in 2013 implying a risk of higher budget deficit. 

Poland
Although the Polish central bank (NBP) kept its main interest rate unchanged at the all-time low, the promising economic environment set the stage for the start of a tightening cycle. We believe that the Q3 GDP figures will show solid growth in core investments (net of inventories), which remained in negative territory till now. Thus, if the doves within the MPC were missing hard evidence of increasing investments (and domestic demand) so far, the GDP report could provide a good argument for a shift in their opinion. 

Slovakia
The MoF revised the 2010 deficit estimate to 7.8% of GDP and forecasts a deficit of 4.9% of GDP in 2011. The government wants a more flexible Labour Code. Eastern Slovak regions are fighting for several big investments, including by IBM, for which Poland is also still in the running.