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Erste Group Research – CEE Insights Fixed Income and Foreign Exchange

Erste Group Research CEE Insights | Fixed Income | Central and Eastern Europe 3 April 2017

CEE Insights

Fixed Income and Foreign Exchange

Looking ahead this week…

Monday Tuesday Wednesday Thursday Friday

HU, CZ, PL: PMIs RO, SK, HU: Retail

Sales

PL, RO: No rate change CZ, HU: Industry

CZ: Trade Balance SK, HU, SI, HR: Trade

Balance

Click for: this week’s detailed releases/events, market forecasts, macro forecasts

As we are in for the start of the new month, this week is fully loaded with events and releases. We will have new PMI readings this morning, which will be interesting to see after the at- or near-record levels posted a month earlier. Industrial data will also come out on Wednesday in the Czech Republic and Hungary, and it is high time that actual output figures reflected the rather strong sentiment (PMI) numbers. Still on Wednesday, central bank meetings in Poland and Romania are not expected to bring any changes in policy rates. On Tuesday, retail sales figures could underpin the ongoing strength of consumption in CEE. As for Thursday and Friday, trade balance numbers may show favorable external trends in most countries.

In case you missed it last week…

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accrued interest FX gain/loss capital gain/loss TOTAL RETURN

LCY bonds* Eurobonds**

CNB kept FX cap, but it is ready to scrap it anytime soon

Hungarian central bank exposing market to even higher HUF liquidity surplus

Flash estimate of Polish CPI surprised on downside - peak is over

Serbia”s PM Aleksandar Vučić recorded a landslide victory in the presidential elections

For other events last week, please check respective countries: HR, CZ, HU, PL, RO, TR, SI, SK, SR

On Radar

Despite the upward trend of bond yields, CEE countries have been doing very well in their debt issuance. Slovakia and Poland completed about half of their full-year issuance plan by the end of March, while Croatia, the Czech Republic, Serbia and Slovenia went even further and completed 60-85% of their full-year issuance plan. They are in a very comfortable position and they can be more selective regarding the timing and pricing of the remaining issuance. Hungary has completed about 40% and 25% of their full-year issuance plan for T-bills and T-bonds, respectively. Given the abundant liquidity on the market resulting from the central bank actions (lowering of the cap on deposits at the central bank, injecting HUF liquidity into the market via FX swaps), we expect smooth financing of the government in HUF. Hungary has not issued any Eurobonds for a long time and, although it has been planned for this year, we are not sure whether it will take place at all. The central bank opposes the Eurobond and from the political perspective there might be a push for more retail bonds issued in EUR (which are very popular among savers). Romania has covered only 11% of its gross financing needs so far, but to be fair Romania did not need to borrow so much in 1Q because of low debt redemptions at the beginning of the year and the favorable seasonal pattern in the budget. Nevertheless, Romania is sitting on a relatively large cash reserve at this moment (EUR 8bn) and higher issuance is expected only later this year, as the largest redemptions are concentrated around the middle of this year. (For further details, see the next page.)



Croatia, the Czech Republic and Slovenia are far ahead in completing their debt issuance plan for this year, while Romania will face higher issuance only later this year (due to a large redemption in summer).

Many CEE countries have already completed more than half of their full-year issuance ‘How much of this year’s gross financing needs has been taken care of in 1Q?’

Croatia: The MoF, as expected, has been quite active in 1Q, tapping both local and Eurobond markets and showing a healthy appetite as far as T-bills are concerned. With 10Y EUR 1.25bn Eurobond issuance, the MoF is at 80+% of its FY17 issuance target, and unless they opt for some pre-financing for 2018, an additional Eurobond this year is not likely (they will easily fill the gap on the local market). On the local market, the MoF issued HRK 8.5bn, which meets 60% of the FY17 issuance target; down the road, we see two smaller size issues in 2Q and towards the year-end. As far as T-bills are concerned, 1Q brought significant maturities (4Q17 should also be demanding). Despite record-low T-bill rates, the issuance was met with still robust demand, allowing for an approx. EUR100mn increase in the T-bill stock and in total close to EUR1.1bn in issuance. We lack the data concerning the bilateral credit, but we see no uncertainties related to this segment. Bottom line, financing risks for 2017 declined following diligent financing actions in 1Q17.

Czech Republic: We expect that the overall gross financing needs for 2017 will be approx. CZK 230-270bn, due to the expected deficit of the central government (CZK 30bn), a need to replace maturing bonds (CZK 210bn) and some other installments. In 1Q, the Ministry of Finance (MoF) issued bonds and T-bills with a value of approx. CZK 200bn; however, only approx. CZK 130bn dealt with bonds. Thus, for the rest of this year, we expect approx. CZK 100bn in issuance, as the T-bills from 1Q17 will mature in the autumn. We also expect the MoF to focus more on bonds with longer maturities. We do not expect an issuance of Eurobonds. Hungary: Approximately 40% of the planned gross issuance from T-bills was carried out by end-March and this ratio was around 25% in the case of forint-denominated government bonds. Due to their high interest payments, retail bonds have remained very popular among households. Just from the 1-year interest-bearing Treasury-bill (KKJ), the ÁKK sold HUF 1000bn by the end of the first quarter. We think that that the ÁKK’s plan of increasing the stock of retail bonds held by households by HUF 700bn in net terms this year will easily be carried out. (Households held approximately 20% of the LCY-denominated debt stock at the end of 2016). As for Eurobonds, according to the issuance plan, the ÁKK aims to issue EUR 1bn worth of bonds denominated in hard currency; however, this has not taken place yet. Please note, however, that the Debt Management Agency and central bank do not agree on the issue of FX-denominated financing. The central bank does not support any Eurobond issuance, as they want the FCY-to-total debt ratio to decline further by the end of this year. (This ratio stood at 25% at end-2016).

Poland: After the first quarter, Poland has slightly more than half of this year's borrowing needs financed. According to the new structure, all maturities are offered at each auction. Despite the return to T-bills, the



average maturity remains at 5.25 years (as of February) and the liquidity position is satisfactory. Moreover, demand for Polish papers proved to be strong (especially among banks), despite the somewhat low appetite of international investors. The comfortable position in financing allows the Ministry of Finance to adjust the issuance plans according to the market conditions in the remainder of the year. Apart from LCY bonds, Poland is likely to tap international markets later this year. So far, the MinFin has issued half of the planned CNY 6bn in bonds and another issue in the amount of CNY 3bn is likely this year. Issuance in other currencies, including EUR-denominated bonds, cannot be ruled out as well (Poland already issued EUR 1bn in 10Y in March priced at a yield of 1.471% and EUR 500mn in 20Y papers priced at a yield of 2.198%). Romania:. The Romanian government borrowed the equivalent of RON 11bn from the local market in 1Q17 through the issue of RON-denominated bonds (54% of total), T-bills (36%) and a domestic EUR-denominated bond (10%). No Eurobond has been issued so far in 2017. The Ministry of Finance has covered 11% of this year’s gross funding needs so far, which suggests that issuing could intensify in the next quarters, including a potential Eurobond. The liquidity buffer of the Ministry of Finance held mainly in euro probably increased to around EUR 8bn at the end of March, thus putting the Ministry of Finance in a comfortable position. The gross funding needs are estimated at RON 72bn in 2017 (8.9% of GDP), positively influenced by the favorable profile of maturing debt but pressured by the rising budget deficit in the coming quarters. If market conditions deteriorate, the Ministry of Finance could issue more debt in the short-term, taking advantage of the abundant liquidity in RON. Serbia: Issuance activity in the first quarter of 2017 was marked by longer maturities, continued compression of yields and relatively low bid-to-cover ratios at both RSD and EUR auctions. Looking at the LCY auctions, the MoF covered a relatively modest 45% of planned issuance in RSD (RSD 38bn vs. RSD 83bn), while in EUR papers it collected 72% of the plan (EUR 398mn vs. EUR 500mn). The relatively lower issuance in RSD can be attributed to somewhat better fiscal execution in the first two months of the year, which gave the Debt Agency more maneuvering space to reject less favorable bids. EUR papers attracted somewhat more attention at 5YR and 10YR auctions with a size of EUR 100+mn.

Slovakia: The Slovak debt agency has issued EUR 4.1bn worth of government bonds and T-bills thus far, which corresponds to almost half of the total expected issuance, which stands at EUR 8.5bn. Despite the expected favorable development of public finances, 2017 issuance should exceed last year’s, due to the large volume of redemptions. Bonds maturing this year amount to EUR 4.3bn and, together with a senior note and T-bill also due in 2017, total redemptions will reach EUR 7.2bn. Overall, there were 16 bond and T-bill auctions in 1Q17, with average maturity around 10 years. Particularly noteworthy was the issue of EUR 2bn in 20Y paper in March, at MS + 68bp (vs. an initial pricing target of +75bp), with a yield of 1.991%. In all auctions, demand for Slovak government bonds and T-bills remains fairly high, suggesting smooth outcomes in the months ahead.

Slovenia: Slovenia has been rather diligent thus far in 2017 regarding issuance, as the beginning of the year brought one new issue (10Y tenor of EUR 1bn) and one reopening of an existing EUR 2045 tenor (additional EUR 300mn). The MoF remained focused on refining its debt profile by switching shorter maturities in USD bonds towards longer EUR tenors,



resulting in an additional EUR 750mn for the issuance stock, after funding the above-mentioned USD buyback. Overall, the financing position remains rather comfortable, with Slovenia securing close to 85% of its financing needs already in 1Q17, which leaves enough maneuvering space ahead to target the most favorable market conditions, in order to complete the remainder of the financing gap for 2017.



Looking ahead Date Time Ctry Release Period Survey Erste Prior Pre Comment

03. Apr. 8:00 RO Unemployment Rate Feb 5.4%

04. Apr. 8:00 RO PPI (y/y) Feb 2.6%

03. Apr. 9:00 HU Trade Balance Jan F 658

9:00 HU PMI Mar 59.5

9:00 PL PMI Mar 54.6 54.2

9:30 CZ PMI Mar 57.6

04. Apr. 8:00 RO Retail Sales (y/y) Feb 6.4% 6.2%Modest acceleration of retail sales in February, in line with higher optimism of

Romanian consumers

04. Apr. 9:00 HU Retail Sales (y/y) Feb 3.3% 3.8%We expect some slowdown, as base effect from last year is not supportive;

consumption, however, might have remained strong

04. Apr. 9:00 SK Retail Sales (y/y) Feb 5.2% 7.4%We expect favorable development of retail sales to continue, although its pace

may be somewhat slower than peak in January

05. Apr. PL Target Rate Apr 1.5% 1.5% 1.5%We expect policy rate to remain flat and MPC to repeat that stability of rates is

most likely scenario this year

05. Apr. RO Target Rate Apr 1.75% 1.75% 1.75%Unchanged key rate and minimum reserves for RON and FX, due to fiscal

uncertainties

05. Apr. 9:00 CZ Industrial Production (y/y) Feb 2.7% 5.6%Domestic as well as foreign demand remain solid; relatively low February

growth is driven by calendar effect and m/m volatility

05. Apr. 9:00 CZ Retail Sales (y/y) Feb 2.1% 7.7%Lower number of working days and higher inflation negatively affect retail sales,

despite strong labor market

05. Apr. 9:00 HU Industrial Production (y/y) Feb 2.2% 1.6% Risks point upwards, as PMI figures stood at high levels in first months of year

06. Apr. CZ Trade Balance Feb 18.5 48.46Solid demand for cars and machinery and lower oil prices are behind favorable

trade balance surplus

07. Apr. 8:00 RO Wages (y/y) Feb 18.37%

07. Apr. 8:00 RO GDP (q/q) 4Q F 1.3% 1.3%

07. Apr. 8:00 RO GDP (y/y) 4Q F 4.7% 4.7%Strong household consumption in context of loose fiscal policy supported real

GDP in 4Q16

07. Apr. 9:00 SK Trade Balance Feb 305 152Good export and import dynamics should contribute to solid foreign trade

performance in February

9:00 HU Trade Balance Feb P 860mn

07. Apr. 10:30 SI Trade Balance Feb 100 0.05 Favorable trends on trade balance side continued in February

07. Apr. 11:00 HR Trade Balance Jan -3333 -4456.5 Both exports and imports seen keeping vivid pace in January

07. Apr. 12:00 RS PPI (y/y) Mar 4.5%

Sources: Bloomberg, Reuters



Major markets Elections in the Netherlands - now more than two weeks ago - were the

first of a series of political risks in the Eurozone this year. The next political risk is presidential elections in France. The first round is scheduled for April 23 and the new president will be known after the run-off election on May 7. Currently, Marine Le Pen (with strong anti-EU agenda) would receive 40% of the vote and Emmanuel Macron, her likely opponent, 60%. From our point of view, the risks coming from this side to the continuation of the EU and/or the Eurozone are very low. Even Luigi Di Maio, a leading representative of the 5 Star party in Italy (which has the strongest support among anti-establishment parties in major EU countries), has backpedaled on the topic of a Eurozone referendum.

After a strong widening at the beginning of the year, risk premiums (above German Bunds) peaked at the end of February and have come down significantly since. French spread tightening accelerated after the first of series of televised debates among presidential contenders. The development differed among bond maturities, but the spread of the five-year maturity has almost returned to the level of the beginning of the year, and the ten-year maturity is only a little above that level. For Italian bonds, the movements were similar and spreads have also tightened considerably since the end of February. So, currently markets are pricing in very little risk that the upcoming elections will trigger a change of the composition of the Eurozone. We think that the markets are right in this assessment, not least as a departure from the Eurozone would have far-reaching economic consequences. Even though France and Italy scored especially badly in the most recent Euro-Barometer survey on the assessment of the EU's future, clear majorities were in favor of monetary union (France: 68%, Italy 53%).

Croatia

The short-term data set revealed favorable developments in February - first in line was the retail trade release, where growth accelerated to a robust 5.7% y/y WDA (vs. 2.6% y/y in January 2017), backed up by the stabilizing labor market conditions and improving consumer sentiment, with tax reform adding to the strong performance. Industrial production also kept positive trends, with the figure posting a 2.3% y/y increase, where intermediate goods and energy production were the only sectors backing up growth on the annual level. We see the February data adding to the strong performance of 1Q17, thus supporting our view of accelerated economic growth in 2017.

Last week brought certain volatility on the markets, amid uncertainties regarding the situation at Agrokor. In reaction, the exchange rate moved in the upper part of the 7.40-7.45 band, while yields moved up by 10bp w/w on the longer end of the curve. Markets will continue to watch how the situation at Agrokor evolves, as recent media reports on a Standstill Agreement between creditors and Agrokor suggest some stabilization could be expected.

Rainer Singer [email protected]

Gerald Walek [email protected]

Alen Kovac [email protected]

Ivana Rogic [email protected]

mailto:[email protected]



Czech Republic The Czech National Bank left its rates on hold (2W repo rate at 0.05%).

The CNB board also confirmed its FX commitment for now (exit not before 2Q). They see the current inflation development as more robust (more pro-inflationary). We see a higher chance of the CNB exiting at the beginning of 2Q.

The third release of 4Q 16 GDP data has not brought any change. Thus, GDP growth arrived at 1.9% y/y, due to the surprisingly low government consumption and y/y decrease in investment expenditures.

Hungary According to the Statistical Office, the 3-month unemployment rate

slightly increased, to 4.4% in December-February, from the 4.3% published for November-January, slightly higher than expected. The number of employed people rose by 130 thousand compared to the same period of the previous year. We expect the unemployment rate to gradually move to 4%, in parallel with the fading effect of the winter seasonality. The unemployment rate may average 4.1% this year.

On Tuesday, the monetary council kept the policy rate unchanged (0.9%), in line with expectations. The MNB did not touch the O/N and 1W lending rates (stable at 0.9%), and left the O/N deposit rate at -0.05%. Additional liquidity will be squeezed out from the 3M deposit, as the central bank plans to reduce the stock of the instrument to HUF 500bn by end-2Q17, from the HUF 750bn seen at the end of 1Q17. The stance of the monetary policy has become even more dovish. By announcing the introduction of the 6-month and 12-month FX-swap facilities through which they could flood additional forint liquidity into the interbank money market, the council indicated that they would like to send money market rates to even deeper levels. As for the new economic forecasts of the central bank, they did not change much compared to December. However, the bank extended the forecasting horizon from two years to three and does not see any considerable upside risks to the inflation forecasts either in 2019.

According to the CSO, the budget balance showed a deficit of HUF 609.7bn last year, equal to 1.7% of GDP, well below the planned 2% of GDP. Public debt was 74.1% of GDP in 2016.

Poland

Flash CPI arrived at 2.0% y/y (-0.1% m/m), surprising the market to the downside (the consensus was at 2.3% y/y). The weaker than expected data supports the relatively dovish stance of the MPC and stability of rates scenario this year.

The EURPLN went down to as low as 4.21. Strengthening of the zloty has been quite extensive recently and we see such a move as not fundamentally justified. We would expect a correction to come with the point forecast at 4.34 in mid-2017.

David Navrátil [email protected]

Orsolya Nyeste [email protected]

Gergely Ürmössy [email protected]

Katarzyna Rzentarzewska

[email protected]





Romania

The Economic Sentiment Indicator released by the EC rose to 105.4 points in March. Managers’ confidence improved in industry, services and retail and deteriorated in the construction sector. Confidence of Romanian consumers increased to a record high, in the context of generous pay hikes in the public sector and better conditions in some segments of the private labor market. We foresee 2017 real GDP at 4.3%, with a key contribution of retail sales.

The Romanian government plans to change the legal environment to enable SOEs to make cash distributions on the back of reserves accumulated from previous years’ profits. These reserves have not been used by SOEs to finance investments and have built up over time. Energy SOEs with a dominant position in the market could be the most important contributors to the state budget, according to the new proposal. One-off government revenues could lessen the pressure on this year’s budget deficit, which we estimate at 3.4% of GDP (cash standards) under the baseline scenario.

The state budget ended the first two months with a cumulative surplus of 0.05% of GDP. Public revenues were helped by rising budgetary income from personal income tax and social insurance contributions, due to higher wages. On the other hand, VAT revenues shrank after a cut in the VAT rate. The expenditure side of the state budget was kept under control through strict control of public expenditure on goods and services and investments. We see this budget surplus as temporary and think that state budget would turn into deficit sooner than last year, due to the stronger impact of personnel expenditures and social transfers.

Serbia

With no macro releases last week, the focus was on politics, ahead of presidential elections on Sunday, April 2. The political situation got slightly more interesting, as the latest polls show that SNS presidential candidate Vucic has below 50% support, meaning that there could be a second round of elections. Although Vucic is a favorite and almost certainly a major winner in a second round, these polls are not 'welcome' among the ruling party or Vucic himself.

On the bond market, we could see the benchmark RSD 2022 bond yield steadily moving around 5.55%, unchanged from the week before.

On the FX market, the EUR/RSD moved around the 123.95 mark, with no

NBS interventions on the FX market.

Slovakia

Economic sentiment fell by 3.6 points to 102.4 in March, as industrial sentiment (down 7.3 points) and service sector sentiment (down 2.3 points) dropped compared to February. Consumer sentiment slid by 0.5 points, as consumers were more pessimistic about the expected unemployment and financial situation of households. On the other hand, sentiment in the retail trade and construction sectors increased somewhat in March. The 3-month moving average stands at 104.6, still pointing to a good first quarter of this year.

Eugen Sinca eugen.sinca @bcr.ro

Alen Kovac [email protected] Milan Deskar-Skrbic [email protected]

Katarina Muchova [email protected]





Producer prices increased by 2.6% y/y in February, surpassing both our and market expectations of a much milder increase. Prices of electricity, gas and steam supply marked an increase of 2.2% y/y. Compared to the previous month, producer prices rose by 0.5% m/m.

Slovenia

The latest inflation release landed only a notch above our expectations, with the headline figure slightly decelerating from 2.2% in February to 1.9% y/y in March (EBCe: 1.8% y/y). On the monthly level, CPI edged up 0.4%, with most pronounced upside pressure coming from higher clothing and footwear prices (due to new collections). We continue to see inflation following a similar footprint ahead, with reversed cost-side pressures and a low base effect backing up the stronger CPI profile throughout 2017 vs. the previous year.

We saw another calm week on the bond market, as yields maintained stable movements, with EUR 2026 currently quoting a few notches above 0.90%.

Alen Kovac [email protected]

Ivana Rogic [email protected]



Capital market forecasts

Government bond yields

current 2017Q2 2017Q3 2017Q4 2018Q1

Croatia 10Y 2.92 2.70 2.80 2.80 2.90

spread (bps) 258 225 225 212 208

Czech Rep. 10Y 0.87 0.80 0.84 0.83 0.88

spread (bps) 54 35 29 15 6

Hungary 10Y 3.26 3.60 3.67 3.67 3.67

spread (bps) 293 315 312 299 285

Poland 10Y 3.50 3.65 3.82 3.98 4.11

spread (bps) 316 320 327 330 329

Romania10Y 3.88 4.25 4.35 4.50 4.75

spread (bps) 354 380 380 382 393

Slovakia 10Y 1.09 1.20 1.23 1.25 1.40

spread (bps) 75 75 68 57 58

Slovenia 10Y 1.38 1.10 1.20 1.30 1.30

spread (bps) 105 65 65 62 48

Serbia 7Y 5.53 5.80 6.00 6.25 6.25

DE10Y (BBG)* 0.34 0.45 0.55 0.68 0.82

3M Money Market Rate

current 2017Q2 2017Q3 2017Q4 2018Q1

Croatia 0.58 0.45 0.45 0.45 0.50

3M forwards - - - -

Czech Republic 0.28 0.27 0.27 0.26 0.26

3M forwards 0.32 0.35 0.36 0.41

Hungary 0.18 0.05 0.05 0.05 0.05

3M forwards 0.22 0.27 0.35 0.46

Poland 1.73 1.75 1.79 1.83 1.99

3M forwards 1.79 1.80 1.85 1.90

Romania 0.86 1.30 1.50 1.90 2.10

3M forwards 0.96 1.23 1.67 2.23

Serbia 3.52 3.60 3.80 4.00 4.00

3M forwards - - - -

Eurozone -0.33 -0.25 -0.25 -0.25 -0.25

FX

current 2017Q2 2017Q3 2017Q4 2018Q1

EURHRK 7.45 7.42 7.50 7.55 7.55

forwards 7.45 7.46 7.47 7.50

EURCZK 27.02 26.50 26.40 26.30 26.20

forwards 26.83 26.81 26.77 26.71

EURHUF 308.0 315.0 315.0 315.0 315.0

forwards 308.4 308.8 309.1 309.5

EURPLN 4.23 4.32 4.29 4.27 4.28

forwards 4.25 4.28 4.30 4.32

EURRON 4.55 4.57 4.60 4.62 4.65

forwards 4.56 4.58 4.60 4.62

EURRSD 123.9 124.0 124.5 124.5 124.5

forwards - - - -

EURUSD 1.07 1.08 1.10 1.12 1.12

Key Interest Rate

current 2017Q2 2017Q3 2017Q4 2018Q1

Croatia 0.50 0.30 0.30 0.30 0.30

Czech Republic 0.05 0.05 0.05 0.05 0.05

Hungary 0.90 0.90 0.90 0.90 0.90

Poland 1.50 1.50 1.50 1.50 1.75

Romania 1.75 1.75 1.75 1.75 1.75

Serbia 4.00 4.00 4.25 4.50 4.50

Eurozone 0.00 0.00 0.00 0.00 0.00

Macro forecasts

Real GDP growth (%) 2015 2016f 2017f 2018fCroatia 1.6 2.9 3.2 2.9Czech Republic 4.6 2.3 2.7 2.9Hungary 3.1 2.0 3.4 2.8Poland 3.6 2.8 3.3 3.4Romania 3.9 4.8 4.3 2.8Serbia 0.8 2.8 3.1 3.4Slovakia 3.8 3.3 3.1 3.7Slovenia 2.3 2.5 3.1 3.0CEE8 average 3.5 3.0 3.3 3.1

Average inflation (%) 2015 2016f 2017f 2018fCroatia -0.5 -1.1 1.5 1.9Czech Republic 0.3 0.7 2.7 1.9Hungary -0.1 0.4 2.5 3.4Poland -0.9 -0.6 1.8 1.9Romania -0.6 -1.5 1.4 2.7Serbia 1.4 1.1 2.4 3.1Slovakia -0.3 -0.5 1.0 2.0Slovenia -0.5 -0.1 1.6 2.0CEE8 average -0.4 -0.4 1.9 2.2

Unemployment (%) 2015 2016f 2017f 2018fCroatia 16.3 12.8 10.6 9.4Czech Republic 5.1 4.1 3.6 3.6Hungary 6.8 5.1 4.3 4.1Poland 10.6 8.9 7.9 7.7Romania 6.8 6.0 5.9 5.8Serbia 17.7 16.0 15.3 14.1Slovakia 11.5 9.7 8.7 7.8Slovenia 9.0 7.9 7.4 6.9CEE8 average 9.3 7.7 6.9 6.6

Public debt (% of GDP) 2015 2016f 2017f 2018fCroatia 86.7 84.0 81.6 79.2Czech Republic 40.3 37.2 35.7 35.9Hungary 74.7 74.3 74.0 72.5Poland 51.5 52.6 53.1 52.9Romania 37.9 37.1 39.2 40.8Serbia 74.7 70.7 69.4 68.9Slovakia 52.7 52.3 52.1 51.2Slovenia 83.4 79.2 77.9 75.9CEE8 average 53.7 52.9 52.8 52.6

C/A (%GDP) 2015 2016f 2017f 2018fCroatia 5.1 2.9 2.4 1.5Czech Republic 0.9 2.1 1.2 1.4Hungary 3.4 4.4 4.2 3.9Poland -0.2 -0.3 -0.6 -0.9Romania -1.2 -2.4 -3.3 -3.8Serbia -4.8 -4.2 -4.6 -4.8Slovakia -1.3 1.0 1.9 3.2Slovenia 5.2 6.8 6.4 5.8CEE8 average 0.4 0.6 0.2 0.1

Budget Balance (%GDP) 2015 2016f 2017f 2018fCroatia -3.2 -1.4 -1.6 -1.6Czech Republic -0.4 0.5 -0.6 -0.6Hungary -2.0 -2.2 -2.7 -2.5Poland -2.5 -2.5 -3.0 -2.9Romania -0.8 -2.8 -3.5 -3.6Serbia -3.8 -1.4 -1.2 -1.0Slovakia -2.7 -2.2 -1.5 -1.2Slovenia -2.9 -2.0 -1.7 -1.5CEE8 average -2.0 -1.9 -2.4 -2.3

Note:*Information on past performance is not a reliable indicator for future performance. Forecasts are not a reliable indicator for future performance.



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4

Jun-1

4

Sep

-14

Dec-1

4

Ma

r-1

5

Jun-1

5

Sep

-15

Dec-1

5

Ma

r-1

6

Jun-1

6

Sep

-16

Dec-1

6

Ma

r-1

7

BUBOR03M Hungary 10Y

0

1

2

3

4

5

6

Ma

r-1

2

Jun-1

2

Sep

-12

Dec-1

2

Ma

r-1

3

Jun-1

3

Sep

-13

Dec-1

3

Ma

r-1

4

Jun-1

4

Sep

-14

Dec-1

4

Ma

r-1

5

Jun-1

5

Sep

-15

Dec-1

5

Ma

r-1

6

Jun-1

6

Sep

-16

Dec-1

6

Ma

r-1

7WIB O3M Poland 10Y

0

1

2

3

4

5

6

7

Dec-1

2

Ma

r-1

3

Jun-1

3

Sep

-13

Dec-1

3

Ma

r-1

4

Jun-1

4

Sep

-14

Dec-1

4

Ma

r-1

5

Jun-1

5

Sep

-15

Dec-1

5

Ma

r-1

6

Jun-1

6

Sep

-16

Dec-1

6

Ma

r-1

7

BUBR3M Romania 5Y

0

2

4

6

8

10

12

Fe

b-1

3

Apr-

13

Jun-1

3

Aug

-13

Oct-

13

Dec-1

3

Fe

b-1

4

Apr-

14

Jun-1

4

Aug

-14

Oct-

14

Dec-1

4

Fe

b-1

5

Apr-

15

Jun-1

5

Aug

-15

Oct-

15

Dec-1

5

Fe

b-1

6

Apr-

16

Jun-1

6

Aug

-16

Oct-

16

Dec-1

6

Fe

b-1

7

BELI3M Serbia 10Y

-1

0

1

2

3

4

5

6

7

8

Mar-12

Jun-12

Sep-12

Dec-12

Mar-13

Jun-13

Sep-13

Dec-13

Mar-14

Jun-14

Sep-14

Dec-14

Mar-15

Jun-15

Sep-15

Dec-15

Mar-16

Jun-16

Sep-16

Dec-16

Mar-17

EUR003M Slovakia 10Y Slovenia 10Y

Note:*Information on past performance is not a reliable indicator for future performance. Forecasts are not a reliable indicator for future performance.



Contacts Group Research Head of Group Research

Friedrich Mostböck, CEFA +43 (0)5 0100 11902 Major Markets & Credit Research Head: Gudrun Egger, CEFA +43 (0)5 0100 11909 Ralf Burchert, CEFA (Agency Analyst) +43 (0)5 0100 16314 Hans Engel (Senior Analyst Global Equities) +43 (0)5 0100 19835 Christian Enger, CFA (Covered Bonds) +43 (0)5 0100 84052 Margarita Grushanina (Economist AT, Quant Analyst) +43 (0)5 0100 11957 Peter Kaufmann, CFA (Corporate Bonds) +43 (0)5 0100 11183 Stephan Lingnau (Global Equities) +43 (0)5 0100 16574 Carmen Riefler-Kowarsch (Covered Bonds) +43 (0)5 0100 19632 Rainer Singer (Senior Economist Euro, US) +43 (0)5 0100 17331 Bernadett Povazsai-Römhild (Corporate Bonds) +43 (0)5 0100 17203 Elena Statelov, CIIA (Corporate Bonds) +43 (0)5 0100 19641 Gerald Walek, CFA (Economist Euro, CHF) +43 (0)5 0100 16360 Macro/Fixed Income Research CEE Head CEE: Juraj Kotian (Macro/FI) +43 (0)5 0100 17357 Zoltan Arokszallasi, CFA (Fixed income) +43 (0)5 0100 18781 Katarzyna Rzentarzewska (Fixed income) +43 (0)5 0100 17356 CEE Equity Research Head: Henning Eßkuchen +43 (0)5 0100 19634 Daniel Lion, CIIA (Technology, Ind. Goods&Services) +43 (0)5 0100 17420 Christoph Schultes, MBA, CIIA (Real Estate) +43 (0)5 0100 11523 Vera Sutedja, CFA, MBA (Telecom, Steel) +43 (0)5 0100 11905 Thomas Unger, CFA (Banks, Insurance) +43 (0)5 0100 17344

Vladimira Urbankova, MBA (Pharma) +43 (0)5 0100 17343 Martina Valenta, MBA +43 (0)5 0100 11913 Editor Research CEE Brett Aarons +420 956 711 014 Research Croatia/Serbia Head: Mladen Dodig (Equity) +381 11 22 09178 Head: Alen Kovac (Fixed income) +385 72 37 1383 Anto Augustinovic (Equity) +385 72 37 2833 Milan Deskar-Skrbic (Fixed income) +385 72 37 1349 Magdalena Dolenec (Equity) +385 72 37 1407 Ivana Rogic (Fixed income) +385 72 37 2419 Davor Spoljar, CFA (Equity) +385 72 37 2825 Research Czech Republic

Head: David Navratil (Fixed income) +420 956 765 439 Head: Petr Bartek (Equity) +420 956 765 227 Vit Machacek (Fixed income) +420 956 765 456 Jiri Polansky (Fixed income) +420 956 765 192 Roman Sedmera (Fixed income) +420 956 765 391 Michal Skorepa (Fixed income) +420 956 765 172 Pavel Smolik (Equity) +420 956 765 434 Jan Sumbera (Equity) +420 956 765 218 Research Hungary Head: József Miró (Equity) +361 235 5131 Gergely Ürmössy (Fixed income) +361 373 2830 András Nagy (Equity) +361 235 5132 Orsolya Nyeste (Fixed income) +361 268 4428

Tamás Pletser, CFA (Oil&Gas) +361 235 5135 Research Poland

Head: Tomasz Duda (Equity) +48 22 330 6253 Marek Czachor (Equity) +48 22 330 6254 Magdalena Komaracka, CFA (Equity) +48 22 330 6256 Mateusz Krupa (Equity) +48 22 330 6251 Karol Brodziński (Equity) +48 22 330 6252 Research Romania Head: Mihai Caruntu (Equity) +40 3735 10427 Head: Dumitru Dulgheru (Fixed income) +40 3735 10433 Chief Analyst: Eugen Sinca (Fixed income) +40 3735 10435 Dorina Ilasco (Fixed Income) +40 3735 10436 Research Slovakia Head: Maria Valachyova, (Fixed income) +421 2 4862 4185 Katarina Muchova (Fixed income) +421 2 4862 4762

Treasury - Erste Bank Vienna

Group Markets Retail Sales Head: Christian Reiss +43 (0)5 0100 84012 Markets Retail a. Sparkassen Sales AT

Head: Markus Kaller +43 (0)5 0100 84239 Equity a. Fund Retail Sales

Head: Kurt Gerhold +43 (0)5 0100 84232 Fixed Income a. Certificate Sales

Head: Uwe Kolar +43 (0)5 0100 83214 Markets Corporate Sales AT Head: Christian Skopek +43 (0)5 0100 84146

Fixed Income Institutional Sales

Group Markets Financial Institutions Head: Manfred Neuwirth +43 (0)5 0100 84250 Bank and Institutional Sales Head: Jürgen Niemeier +49 (0)30 8105800 5503 Institutional Sales Western Europe AT, GER, FRA, BENELUX Head: Thomas Almen +43 (0)5 0100 84323 Charles-Henry de Fontenilles +43 (0)5 0100 84115 Marc Pichler +43 (0)5 0100 84118

Rene Klasen +49 (0)30 8105800 5521 Dirk Seefeld +49 (0)30 8105800 5523 Bernd Bollhof +49 (0)30 8105800 5525 Bank and Savingsbanks Sales

Head: Marc Friebertshäuser +49 (0)711 810400 5540 Sven Kienzle +49 (0)711 810400 5541 Michael Schmotz +43 (0)5 0100 85542 Ulrich Inhofner +43 (0)5 0100 85544 Klaus Vosseler +49 (0)711 810400 5560 Andreas Goll +49 (0)711 810400 5561 Mathias Gindele +49 (0)711 810400 5562 Institutional Sales CEE and International Head: Jaromir Malak +43 (0)5 0100 84254 Central Bank and International Sales

Head: Margit Hraschek +43 (0)5 0100 84117 Christian Kössler +43 (0)5 0100 84116 Bernd Thaler +43 (0)5 0100 84119 Institutional Sales PL and CIS

Pawel Kielek +48 22 538 6223 Michal Jarmakowicz (Fixed Income) +43 50100 85611 Institutional Sales Slovakia Head: Peter Kniz +421 2 4862 5624 Sarlota Sipulova +421 2 4862 5619 Monika Smelikova +421 2 4862 5629 Institutional Sales Czech Republic Head: Ondrej Cech +420 2 2499 5577 Milan Bartos +420 2 2499 5562 Barbara Suvadova +420 2 2499 5590 Institutional Asset Management Sales Czech Republic Head: Petr Holecek +420 956 765 453 Martin Perina +420 956 765 106 Petr Valenta +420 956 765 140 David Petracek +420 956 765 809 Institutional Sales Croatia Head: Antun Buric +385 (0)7237 2439 Željko Pavičić +385 (0)7237 1494 Ivan Jelavic +385 (0)7237 1638 Institutional Sales Hungary

Attila Hollo +36 1 237 8209 Borbala Csizmadia +36 1 237 8205 Institutional Sales Romania

Head: Ciprian Mitu +43 (0)50100 85612 Stefan Mortun Racovita +40 373 516 531 Business Support Tamara Fodera +43 (0)50100 12614 Bettina Mahoric +43 (0)50100 86441



Disclaimer This publication was prepared by Erste Group Bank AG or any of its consolidated subsidiaries (together with consolidated subsidiaries "Erste Group") independently and objectively as other information pursuant to the Circular of the Austrian Financial Market Authority regarding information including marketing communication pursuant to the Austrian Securities Supervision Act. This publication serves interested investors as additional source of information and provides general information, information about product features or macroeconomic information without emphasizing product selling marketing statements. This publication does not constitute marketing communication pursuant to Art. 36 (2) Austrian Securities Supervision Act as no direct buying incentives were included in this publication, which is of information character. This publication does not constitute investment research pursuant to § 36 (1) Austrian Securities Supervision Act. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and it is not subject to the prohibition on dealing ahead of the dissemination of investment research. The information only serves as non-binding and additional information and is based on the level of knowledge of the person in charge of drawing up the information on the respective date of its preparation. The content of the publication can be changed at any time without notice. This publication does not constitute or form part of, and should not be construed as, an offer, recommendation or invitation to subscribe for or purchase any securities, and neither this publication nor anything contained herein shall form the basis of or be relied on in connection with or act as an inducement to enter into any contract or inclusion of a security or financial product in a trading strategy. Information provided in this publication are based on publicly available sources which Erste Group considers as reliable, however, without verifying any such information by independent third persons. While all reasonable care has been taken to ensure that the facts stated herein are accurate and that the forecasts, opinions and expectations contained herein are fair and reasonable, Erste Group (including its representatives and employees) neither expressly nor tacitly makes any guarantee as to or assumes any liability for the up-to-dateness, completeness and correctness of the content of this publication. Erste Group may provide hyperlinks to websites of entities mentioned in this document, however the inclusion of a link does not imply that Erste Group endorses, recommends or approves any material on the linked page or accessible from it. Neither a company of Erste Group nor any of its respective managing directors, supervisory board members, executive board members, directors, officers of other employees shall be in any way liable for any costs, losses or damages (including subsequent damages, indirect damages and loss of profit) howsoever arising from the use of or reliance on this publication. Any opinion, estimate or projection expressed in this publication reflects the current judgment of the author(s) on the date of publication of this document and do not necessarily reflect the opinions of Erste Group. They are subject to change without prior notice. Erste Group has no obligation to update, modify or amend this publication or to otherwise notify a reader thereof in the event that any matter stated herein, or any opinion, projection, forecast or estimate set forth herein, changes or subsequently becomes inaccurate. The past performance of securities or financial instruments is not indicative for future results. No assurance can be given that any financial instrument or issuer described herein would yield favorable investment results or that particular price levels may be reached. Forecasts in this publication are based on assumptions which are supported by objective data. However, the used forecasts are not indicative for future performance of securities or financial instrument. Erste Group, its affiliates, principals or employees may have a long or short position or may transact in the financial instrument(s) referred to herein or may trade in such financial instruments with other customers on a principal basis. Erste Group may act as a market maker in the financial instruments or companies discussed herein and may also perform or seek to perform investment services for those companies. Erste Group may act upon or use the information or conclusion contained in this publication before it is distributed to other persons. This publication is subject to the copyright of Erste Group and may not be copied, distributed or partially or in total provided or transmitted to unauthorized recipients. By accepting this publication, a recipient hereof agrees to be bound by the foregoing limitations. © Erste Group Bank AG 2017. All rights reserved. Published by:

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