Macroeconomic overview SEE and Macedonia Zoltan Arokszallasi Chief Analyst, Macro & FX/FI Research Erste Group Bank Erste Investors Breakfast, 29 September, Skopje 02. Oktober
SEE shows mixed performance in growth since the crisis 25% 20% 15% 11.7% 10% 5% 0% -5% EU 28 (+0.4%) -1.4% -0.2% 2.0% Eurozone (-1.3%) -10% -7.0% -15% -12.4% -20% -25% -30% Source: Eurostat Greece Croatia Cyprus Italy Portugal Slovenia Spain Finland Denmark Latvia Serbia Netherlands Hungary Romania B & H Czech Republic Iceland Bulgaria Lithuania Montenegro France Austria Belgium Estonia Ireland Germany United Kingdom Norway Sweden Slovakia Switzerland Macedonia Malta Luxembourg Poland 02. Oktober
Macedonia s economy the fastest growing on average since 1Q14 in SEE subgroup 6 5 4 3 2 1 0-1 -2-3 -4 Source: Country statistical offices 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 Quarterly real GDP growth (y/y, percent) Croatia Slovenia Serbia Montenegro Macedonia Bosnia and Herzegovina 02. Oktober
Euro Area Croatia Czech Republic Hungary Poland Romania Serbia Slovakia Slovenia CEE8 average Macedonia Montenegro Annual inflation collapsing everywhere... 9 8 7 6 5 4 3 2 1 0-1 -2 Annual increase of the consumer price index (percent) 2012 2013 2014 Source: Eurostat 02. Oktober
...and inflation is also moving in tandem everywhere based on monthly indices* 14 12 Annual increase of the consumer price index (percent) 10 8 6 4 2 0-2 Montenegro Macedonia Croatia Czech Rep Hungary Poland Romania Slovenia Slovakia Serbia -4 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 * Except for countries where the government is strongly interfering (ie Romania) 02. Oktober
Serbia Slovenia Croatia Macedonia Montenegro Cyprus Greece Portugal Italy Iceland United Kingdom Serbia Luxembourg Netherlands Croatia Denmark Spain Malta Lithuania Ireland Poland Slovenia Montenegro Germany Finland Bulgaria Slovakia Hungary France Romania Austria Latvia Belgium Sweden Norway Czech Republic Estonia Macedonia Capital stock per person employed is low, pointing to more investment as key to growth Capital intensity and GDP per person vs Germany, 2011 35 Gross fixed capital formation, percent of GDP 30 2010 2014 90% 80% 70% 60% 50% 40% 30% Capital per person employed, PPS GDP per person, PPS 25 20 15 10 EU28 2010: 20.1% EU28 2014: 19.3% 20% 10% 5 0% 0 Sources: FRED database, AMECO 02. Oktober
European Union (28 Euro area (19 countries) Belgium Bulgaria Czech Republic Denmark Germany Estonia Ireland Greece Spain France Croatia Italy Cyprus Latvia Lithuania Luxembourg Hungary Malta Netherlands Austria Poland Portugal Romania Slovenia Slovakia Finland Sweden United Kingdom Iceland Norway Turkey Macedonia Montenegro Labor market participation and employment both improving, but still behind EU avg Labor market participation in % of total population 90 85 80 75 70 65 60 55 50 45 40 Sources: Eurostat, country statistical offices Activity rate 2007 Activity rate 2014 Employment rate 2007 Employment rate 2014 02. Oktober
Exports to GDP improving and role of Germany as export destination strongly growing Merchandise trade as % of GDP 6,000,000 5,000,000 4,000,000 3,000,000 2,000,000 1,000,000 0 2010 2011 2012 2013 2014 Other Albania Slovakia China Bosnia and Herzegovina Romania Croatia Belgium Greece Italy Bulgaria Serbia Germany Sources: International Trade Centre calculations based on UN comtrade 02. Oktober
Business and competitiveness rankings are not bad, but rooms for improvement are still visible Knowledge Economy Index 2012 Index 14-15 Corruption Perception Index 2014 Knowledge Economy Index 2012 Index 14-15 Corruption Perception Index 2014 Knowledge Economy Index 2012 Index 14-15 Corruption Perception Index 2014 Tourism & Travel index Doing Business Tourism & Travel index Doing Business Tourism & Travel index Doing Business Innovation Index World Press Freedom Index Innovation Index World Press Freedom Index Innovation Index World Press Freedom Index Croatia CEE6 SEE Slovenia CEE6 SEE Serbia CEE6 SEE Index 14-15 Index 14-15 Index 14-15 Knowledge Economy Index 2012 Corruption Perception Index 2014 Knowledge Economy Index 2012 Corruption Perception Index 2014 Knowledge Economy Index 2012 Corruption Perception Index 2014 Tourism & Travel index Doing Business Tourism & Travel index Doing Business Tourism & Travel index Doing Business Innovation Index World Press Freedom Index B&H CEE6 SEE Innovation Index World Press Freedom Index Montenegro CEE6 SEE Innovation Index World Press Freedom Index Macedonia CEE6 SEE 02. Oktober
Although fiscal gaps are narrowing on average in Europe... Budget deficits in percent of GDP Source: Eurostat 02. Oktober
...public debt is still expected to grow in many SEE countries... Expected accumulation of public debt to GDP, % points, 2014-16 Source: Eurostat 02. Oktober
...but net international investment position is more important for ratings than public debt Net International Investment Position (% of GDP)* -150-100 -50 0 50 Sovereign Rating* AAA AA+ AA AA- A+ A A- BBB+ BBB BBB- BB+ BB BB- B+ B B- CCC+ PT IR ES HU HR SK PL LV RO EE SI CZ IT FR MKD - actual in 3Q14, avg of Fitch and S&P ratings AT FI D NL BE GR Sources: Eurostat, rating agencies * average since Jun 2011, composite ratings for CEE countries, S&P for others 02. Oktober
Critical interest rates not yet reached in the budgets, but market sentiment helps a lot! Interest paid by the central government vs current and critical interest rates Source: Eurostat 02. Oktober
Government redemption structure shows need for additional issuance in near future 800 700 600 500 Government debt redemption and cash buffer (EURmn) 730 604 536 400 300 200 100 0 62 Cash buffer Source: Erste Group Research data collection 117 138 53 35 24 68 58 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 02. Oktober