SEE macroeconomic outlook Recovery gains traction, fiscal discipline improving Alen Kovac, Chief Economist EBC May 216 Ljubljana
Real economy highlights
Recent GDP track record reveals more favorable footprint GDP, y/y growth rates in the selected economies 6 5 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 4 3 2 1-1 -2-3 -4 Croatia Slovenia Serbia Montenegro Macedonia Bosnia and Herzegovina Source: Statistical offices
4Q:9 1Q:1 2Q:1 3Q:1 4Q:1 1Q:11 2Q:11 3Q:11 4Q:11 1Q:12 2Q:12 3Q:12 4Q:12 1Q:13 2Q:13 3Q:13 4Q:13 1Q:14 2Q:14 3Q:14 4Q:14 1Q:15 2Q:15 3Q:15 4Q:15 GDP momentum kept robust momentum GDP performance EU & peer comparison (4Q trailing annual growth rate) 6% 4% 2% % -2% -4% -6% -8% -1% EU28 CEE6 SI Source: Eurostat
4Q:9 1Q:1 2Q:1 3Q:1 4Q:1 1Q:11 2Q:11 3Q:11 4Q:11 1Q:12 2Q:12 3Q:12 4Q:12 1Q:13 2Q:13 3Q:13 4Q:13 1Q:14 2Q:14 3Q:14 4Q:14 1Q:15 2Q:15 3Q:15 4Q:15 4Q:9 1Q:1 2Q:1 3Q:1 4Q:1 1Q:11 2Q:11 3Q:11 4Q:11 1Q:12 2Q:12 3Q:12 4Q:12 1Q:13 2Q:13 3Q:13 4Q:13 1Q:14 2Q:14 3Q:14 4Q:14 1Q:15 2Q:15 3Q:15 4Q:15 4Q:9 1Q:1 2Q:1 3Q:1 4Q:1 1Q:11 2Q:11 3Q:11 4Q:11 1Q:12 2Q:12 3Q:12 4Q:12 1Q:13 2Q:13 3Q:13 4Q:13 1Q:14 2Q:14 3Q:14 4Q:14 1Q:15 2Q:15 3Q:15 4Q:15 Private consumption trending higher, investments seen moving into red GDP components EU & peer comparison (4Q trailing annual growth rate) 4% 3% 2% 1% Private consumption 1% 5% % Fixed capital formation % -5% -1% -2% -3% -4% -5% EU28 CEE6 SI -1% -15% -2% -25% EU28 CEE6 SI 2% 15% Exports 1% 5% % -5% -1% EU28-15% -2% CEE6 SI Source: Eurostat
Jan-1 May-1 Sep-1 Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 Jan-16 Jan-1 May-1 Sep-1 Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 Jan-16 Jan-1 May-1 Sep-1 Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 Jan-16 Jan-1 May-1 Sep-1 Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 Jan-16 Sentiment remains largely robust, consumers looking more cautious Sentiment indicators 1-1 -2-3 -4-5 -6-7 Construction confidence indicator EU SI 15 1 5-5 -1-15 -2-25 Industrial confidence indicator Source: Eurostat EU SI 3 Retail confidence indicator 2 1-1 -2-3 -4 EU SI Consumer confidence indicator -1-2 -3-4 -5-6 EU SI
1Q:9 2Q:9 3Q:9 4Q:9 1Q:1 2Q:1 3Q:1 4Q:1 1Q:11 2Q:11 3Q:11 4Q:11 1Q:12 2Q:12 3Q:12 4Q:12 1Q:13 2Q:13 3Q:13 4Q:13 1Q:14 2Q:14 3Q:14 4Q:14 1Q:15 2Q:15 3Q:15 4Q:15 1Q:16 Labor market trends seen remaining supportive as unemployment remains on downward trajectory Unemployment rate (4Q average) 12 11 1 9 8 7 6 5 4 EU28 CEE6 SI Source: Eurostat
1Q:9 2Q:9 3Q:9 4Q:9 1Q:1 2Q:1 3Q:1 4Q:1 1Q:11 2Q:11 3Q:11 4Q:11 1Q:12 2Q:12 3Q:12 4Q:12 1Q:13 2Q:13 3Q:13 4Q:13 1Q:14 2Q:14 3Q:14 4Q:14 1Q:15 2Q:15 3Q:15 4Q:15 Employment is also trending higher Employment rate (4Q average) 69 68 67 66 65 64 63 62 61 6 EU28 CEE6 SI Source: Eurostat
Employment 215/28 CAGR Employment vs GDP employment recovery lags, evidence of jobless recovery in several countries Average growth rate of GDP vs average growth rate of employment 215/218 3% 2% 1% % -1% SI -2% -3% HR -4% -5% -5% -4% -3% -2% -1% % 1% 2% 3% 4% GDP 215/28 CAGR Source: Eurostat
Employment dynamics improving, though still at slower pace compared to GDP GDP vs employment (28=1) 15 1 95 9 85 8 75 28 29 21 211 212 213 214 215 EU 28 employment EU 28 GDP Slovenia employment Slovenia GDP Source: Eurostat
Ireland Malta Luxembourg Romania Poland Macedonia Montenegro Sweden Slovakia Czech Republic Latvia Spain Hungary Lithuania Bulgaria USA Slovenia United Kingdom EU Netherlands Croatia Estonia Cyprus Serbia Euro area Germany Portugal Denmark Belgium France Austria Italy Greece Finland Japan Slovenia keeping pace with EU average, Croatia and Serbia outlook firmed, Macedonia and Montenegro keeping strong pace Expected cumulative GDP growth 215-217 2 18 16 14 12 1 8 6 4 2 Source: EC spring 216 forecast
GDP shifts into lower gear amid investments slowdown, exports and private consumption remain supportive Contributions to real GDP growth 9 6 3-3 -6-9 -12 26 27 28 29 21 211 212 213 214 215f 216f Private consumption Investments Inventories Public consumption Net exports GDP, growth rate 9 6 3-3 -6-9 -12 Source: SURS, EBC
Low inflation environment CPI expected to gradually pick up in the following years Average 215 CPI figure and 216 forecasts 2 1.5 1.5 -.5-1 -1.5 CRO HUN SLO CZE SLK POL ROM 215 216f (Dec) 216f (Jun) Source: Erste Research
External debt (% of GDP) Debt-C/A deficit spiral robust CA performance supporting further deleveraging Current account balance and external debt (% of GDP) 13 12 11 1 9 8 7 6 214 21 212 215 213 211 211 213 214 21 212 215 Slovenia CEE -3-2 -1 1 2 3 4 5 6 7 8 C/A balance (% of GDP) Source: Eurostat
Fiscal metrics showing improvement
Public debt (% of GDP) Fiscal / GDP combo looks increasing comfortable Real GDP growth and public debt (% of GDP) 95 85 75 215 214 65 55 212 213 212 212 213 214 211 215 45 211 21 SLOVENIA CEE 21 35 21-6% -5% -4% -3% -2% -1% % 1% 2% 3% 4% 5% 6% Real GDP growth Source: Eurostat
Public debt (% of GDP) Deficit moving towards comparable CEE levels and below 3% of GDP threshold Deficit and public debt (% of GDP) 95 85 214 215 75 213 65 213 214 215 55 212 211 212 21 45 211 SLOVENIA CEE 21 35-16 -14-12 -1-8 -6-4 -2 Deficit (% of GDP) Source: Eurostat
GRE ESP UK POR FRA CRO SLK SLO FIN POL BEL ITA BUG IRE DEN HUN NET MAL LAT AUS CYP ROM CZE LIT SWE GER LUX Fiscal outlook consolidation remains on track in Slovenia, Croatia positively surprised Budget gaps (% of GDP) 2 1-1 -2-3 -4-5 -6-7 -8 215 216-217 Maastricht 3% Source: EC
ROM FIN BUG GRE POL LUX FRA CRO ESP LIT UK SLK CZE BEL LAT ITA NET DEN HUN AUS SWE CYP POR GER SLO MAL IRE correspondingly pressure on public debt eases Expected public debt accumulation in 215-217 period 6 Source: EC 4 2-2 -4-6 -8
Financing profile looking strong Public sector financing needs in 216, cash buffer and % completion of target issuance 1% 9% 8% 7% 6% 5% 4% 3% 2% 1% % 81% if we compare 1Q16 financing + cash buffer to t-bill and t-bond redemptions only HR CZ HU PL RO RS SK SI 1Q16 issuance vs total 216 financing need Cash buffer vs total 216 financing need Gross fin. needs in % of GDP, 216 total (rhs) 25% 2% 15% 1% 5% % Source: Bloomberg
Bulgaria Denmark Sweden Czech Republic Finland Latvia Romania Lithuania Poland Slovakia Netherlands Hungary Malta Austria France Slovenia Germany Croatia Belgium United Kingdom Spain Italy Cyprus Portugal Ireland Greece Low yield environment supporting debt servicing cost, though risk profile remains differentiating factor 16% 14% 12% 1% critical rate average rate current 1Y rate 8% 6% 4% 2% % * Critical rate represents interest rate at which country is spending 1% of total budget expenditures for debt servicing Source: Eurostat; Bloomberg
Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Less aggressive FED supportive of CDS compression 5yr CDS spread Source: Bloomberg 6 5 4 3 2 1 A World BBB World A EU BBB EU
December 215 - S&P seems to be on spot as Slovenia is concerned CDS vs. S&P rating Source: Bloomberg
May 216 YTD flattening driven by compression on Weaker end of the rating scale CDS vs. S&P rating Source: Bloomberg
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 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Spread indicating steady pattern recently and similar Pattern remains our baseline scenario for 216 Yield comparison and spread Spread (RHS) DE 224 SI 224 8 8 7 7 6 6 5 5 4 4 3 3 2 2 1 1 Source: Bloomberg
Nov-12 Dec-12 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 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 Slovenia trading tight with Italy and Portugal 1Y EUR yields Slovenia vs. selected Eurobonds performance (bp) 3 PT IT ES 2 1-1 -2-3 Source: Bloomberg
Nov-12 Dec-12 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 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 similar pattern when comparing to CEE peers 1Y EUR yields Slovenia vs. selected Eurobonds performance (bp) PL SK CZ 5 45 4 35 3 25 2 15 1 5-5 Source: Bloomberg
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