Domestic demand, the primary source of growth in CEE

Domestic demand should remain the primary source of growth in CEE this year. However, compared to last year, it is going to be more consumption- and less investment-driven growth. It will not be possible to keep up such fast dynamics of investments (or even the level) seen last year.

In 2015, CEE countries recorded the highest EU inflow ever. Household consumption should get a boost from fiscal loosening, which is planned on a large scale in Romania, Poland and partially in Hungary.

Romania’s GDP growth accelerated to 4.3% (in line with our expectations), but slowdown of Hungarian, Polish and Slovak GDP was deeper than expected.

Romania real GDP growth was strong in 1Q16 (+1.6% q/q and +4.3% y/y), but no additional details have been released so far. Most likely, the structure remained the same as in the previous quarters, with strong household consumption, positive but less impressive gross fixed capital formation and negative external demand. This particular GDP structure favors an increase.

Erste Bank revised inflation forecast to account for weaker than expected consumer prices, to 0.2% y/y in December 2016 and 2.4% y/y in December 2017. Looking forward regarding the NBR’s monetary policy, Erste Bank expects a 25bp hike in the key rate in 1Q17, due to fiscal risks.

CEE macro forecasts Erste Bank

Hungarian GDP disappointed to the downside, as the figure showed only a 0.9% y/y increase in 1Q16. In the background stood the unfavorable construction performance and weaker industrial production, according to the StatOffice. The details are due on June 7.

Poland 1Q16 GDP disappointed, arriving at 3.0% y/y. This is well below expectations and we suspect that the slowdown was driven by a drop in investment. In the coming quarters, we expect GDP growth to be supported by strong private consumption growth. At this point, we maintain our forecast at 3.6% growth this year, but we see risks to the downside.

According to the flash estimate, Slovakia GDP growth slowed to 3.3% y/y in 1Q16. The flash figure stands slightly below both our and market expectations (3.5% y/y). S.a. quarterly growth stood at 0.7% q/q.

More: Erste Group Research , CEE Insights, Central and Eastern Europe, 13 May 2016



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