Poland’s Rotten Apple Remnants
Polish shares stayed negative with Russia’s fruit and vegetable ban slicing one-tenth of agricultural exports, as the GDP growth forecast was shaved to 3 percent on lackluster domestic and external outlooks. The PMI remained below 50 with the German supply chain the main industry catalyst but also losing momentum according to the latest sentiment readings. Deflation also set in for the first time in three decades in July with lower food and fuel prices and output capacity slack but the central bank has hesitated to cut rates in the belief the phenomenon is temporary. The fiscal deficit falls under the EU’s 3 percent-plus monitoring procedure but savings resulted from private pension and government bond cancellation under controversial changes last year. Local calculation puts the public debt/GDP ratio under 50 percent with the current account gap also disappearing with resumed automaker FDI and EUR 10 billion in Brussels cohesion funds. A backup $35 billion flexible credit line was renewed with the IMF which expires in January 2015 and officials have been circumspect about extension which was ruled out before recent events, including possible preparation for an influx of Ukrainian refugees as outgoing Prime Minister Tusk is in the running for the European Commission’s top foreign policy post. Hungary has been at the bottom of the Central Europe equity pack as the Orban administration put the final touches on another punishing foreign currency mortgage conversion round for alleged overcharging estimated to cost banks EUR 2-3 billion. The assigned rate could be 10 percent under the market according to initial iterations and the central bank would dip into its $35 billion in reserves for support. Foreign bank outflows were EUR700 million in the first half for a total above EUR 20 billion since the Fidesz party took power dedicated to restoring forint and local lender dominance. The loan-to-deposit measure has dropped to 100 percent but one-quarter of household FX credit is still in trouble. The policy rate after 500 basis points in reduction stands at 2 percent as government debt has risen to 80 percent of GDP, prompting EU warnings despite regular Budapest dismissal of its views, Zero monthly inflation has outperformed the target but reflects deep seated lack of private investment with the regime’s erratic moves as official infrastructure spending has tried to fill the vacuum.
Czech Republic shares have flailed as authorities continue their own intervention method, keeping the koruna around 27/euro into 2016 as core inflation just turned positive. It will leave the excess deficit review as the tentative coalition backs sound fiscal policy short of major health and pension adjustments. In frontier stock markets in contrast Romania has been a consistent gainer, with opinion tallies for November presidential polls showing current Prime Minister Ponta in the lead. The sovereign is now rated investment-grade by all three houses and the central bank is on a monetary easing path as limited privatization has been the residual of IMF and World Bank financial and technical aid.
