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ERSTE GROUP
Outlook on the CEE Region
Financial Markets & Debt
Fritz Mostböck, CEFA
Head of Group Research
AAFBR Conference
Bucharest, November 2010
The crisis is parked in
government debt ...
ERSTE GROUP
1. Financial
crisis
2. Economic
crisis
3. Debt
crisis
Sources: Erste Group Research, “The Banker“
Bucharest
November 2010
AAFBR Conference
2
ERSTE GROUP
CEE: economy and
government debt
Bucharest
November 2010
AAFBR Conference
3
GDP growth rates of CEE countries overshadowing
those of the established countries in the long term
ERSTE GROUP
GDP growth, real (%)
12
Baltics
New EU member
countries
7
CEE4
2
Euro Area
-3
-8
Baltics
-13
-18
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010F 2011F
Sources: Eurostat, Erste Group Research
Bucharest
November 2010
AAFBR Conference
4
GDP has more than tripled in some CEE countries
in the past decade
ERSTE GROUP
GDP per capita in EUR
16000
GDP per capita in EUR more than tripled
14000
12000
10000
1998
2009F
8000
6000
4000
2000
0
Ukraine
Serbia
Romania
Croatia
Slovakia
Hungary
Czech
Republic
Sources: Eurostat, Erste Group Research
Bucharest
November 2010
AAFBR Conference
5
Low public debt in the CEE region
ERSTE GROUP
Public debt (EUR bn, 2010e)
1835
CEE6 public debt is less
than a quarter of Italy's
450
 The total public debt of the Czech
Republic, Slovakia, Hungary, Romania,
and Croatia is about EUR 220bn...
400
350
195
300
PL
250
RO
SK
38
150
HR
17
100
HU
79
CZ
58
200
Public debt
excl. Poland is
considerbably
below the debt
of Greece
 ... and is thus less than the public debt of
Greece alone (EUR 30bn)
300
 Inclusive of Poland, total public debt
amounts to EUR 414bn
27
 Less than Spain (EUR 661bn)
 Less than a quarter of Italy (EUR
1835bn).
50
0
CEE6
Greece
Italy
Source: AMECO, Erste Group Research
Bucharest
November 2010
AAFBR Conference
6
In terms of GDP, public debt is low and certainly (well) below
the Eurozone average
ERSTE GROUP
Public debt (in % of GDP, 2010e)
0
Greece
Italy
Belgium
USA
Portugal
Eurozone
Irland
France
UK
Hungary
Germany
Austria
Spain
Netherlands
Poland
Finland
Croatia
Slovenia
Slovakia
Serbia
Ukraine
Czech Republic
Romania
Bulgaria
20
40
60
80
100
9.4
10
8.56,6
86
85
6.6
11.7
84
79
79
79
11.8
4
 Hungarian debt is below the Eurozone
average
77
8
5
5
70
65
66
4.7
9.8
6.3 6,3
7.3 7,3
55
51
57
4
4.7
6.1 6,1
42
42
37
40
40
7.5 7,5
4.8
5.5
5.3
 The share of government bonds held
outside the respective countries is
relatively low in the CEE region
Euro Area
average (2010E)
 in CEE6 it accounts for about a quarter of
public debt or 22-23% of GDP
 In Greece the share accounts for two thirds
of public debt or 90% of GDP
Maastricht
lim it
Debt
Deficit
30
7.8
2.8
 All CEE countries except Hungary have
maintained their aggregate debt below
60% of GDP
99
94
10 8,5
4
140
125
118
5.2
5
120
17
Sources: AMECO, JEDH, Erste Group Research
Bucharest
November 2010
AAFBR Conference
7
Recovery clearly noticeable, but base level and
speed are very mixed
ERSTE GROUP
q/q GDP growth (%)
2
1.5
1
2Q09
3Q09
0.5
4Q09
1Q10
0
2Q10
-0.5
Q310e
Q410e
-1
-1.5
-2
Hungary
Romania
Czech Republic
Poland
Slovakia
 Differentiation between the various countries is therefore crucial,
 PL, CZ, and SK ahead, H and RO with a time lag / flatter development.
Source: Erste Group Research
Bucharest
November 2010
AAFBR Conference
8
Substantially lower cost of labour and solid
growth of productivity
ERSTE GROUP
Nominal compensation per employee (EUR ‘000)
Germany
 Cost of labour (inclusive of social
Spain
contributions) in CEE account for half
of those in Spain and a third of those
Greece
in Germany
Portugal
Croatia
 This relation has even improved as a
consequence of the depreciation of
Czech
Republic
local currencies
Slovakia
2010
2009
Hungary
2008
 ROE much higher in CEE because of
2007
Poland
lower unit cost of labour
Romania
0
10
20
Sourceds: AMECO, Erste Group Research
Bucharest
November 2010
30
40
50
AAFBR Conference
9
A glimpse at the growth figures
GDP growth (base scenario,%)
2009
2010
2011
2012
Croatia
-5.8
-1.5
1.5
2.5
Czech Republic
-4
2.2
2.0
2.8
Hungary
-6.3
0.9
2.6
3.1
Poland
1.8
3.3
3.7
4.4
Romania
-7.1
-3.0
1.2
2.3
Serbia
-3
1.3
3.0
3.8
Slovakia
-4.7
4.1
4.0
4.5
Ukraine
-15.1
4.3
4.5
6.0
CEE8 - weighted average
-3.7
1.9
2.9
3.1
Eurozone
-4.1
1.6
1.3
1.6
ERSTE GROUP
After the slump in GDP growth from 4% to -3.7% in
2009, we seem to be seeing a slight recovery in
2010 to +1.9% (EMU +1.6%), which should speed up
to +2.9% (EMU +1.3%) in 2011.
 The 2010 recovery has mainly come on the
back of foreign trade
 This contribution will subside in 2011, and the
economic activity in the Eurozone should
remain moderate
 However, private consumption in the CEE
region should record a clear rebound next year
Risk factors
 Weaker Eurozone economy
 Stronger negative effects of the budget
consolidation than anticipated
Sources: Eurostat, Erste Group Research
Bucharest
November 2010
AAFBR Conference
10
ERSTE GROUP
Ytd performance equity markets
DOW JONES
International
13,1%-
between government debt
6,4%
DAX 30
and YTD performance on
11,7%
1,8%- CAC 40
9,9%8,0%-
the equity markets
IBEX 35
MIB INDEX
Investors are clearly
differentiating
ATHEN 20
9,4%-
IRELAND
OMX COPENHAGEN
27,0%
OMX STOCKHOLM
The country approach is
gaining importance again
8,2%
BUDAPEST (BUX)
relative to the regional or
9,1%
WARSAW WIG
16,7%
sector approach
11,6%
ROMANIA BET
UKRAINE PFTS
30,6%

Debt will continue to
24,4%
ISE ISTANBUL
PRAGUE PX

15,4%
ATX
CEE

PIIGS Countries
0,9%- PORTUGAL
35,3%-
Strong evidence for a link
NIKKEI 225
FTSE 100
Westeuropa

7,3%
burden financial markets
3,9%
Source: Bloomberg, performances in local currencies as of 3rd, Nov 2010
Bucharest
November 2010
AAFBR Conference
11
CDS spreads have come back to normal levels, but Hungary
and Romania are grappling with domestic (political) problems
ERSTE GROUP
Sovereign credit default swaps (bps)
1000
5000
Czech Republic
Poland
Hungary
Romania
Ukraine (rhs)
Croatia
900
800
700
600
4500
4000
3500
3000
500
2500
400
2000
300
1500
200
1000
100
500
Sep-10
Jul-10
May-10
Mar-10
Jan-10
Nov-09
Sep-09
Jul-09
May-09
Mar-09
Jan-09
Nov-08
Sep-08
Jul-08
May-08
Mar-08
Jan-08
Nov-07
Sep-07
Jul-07
May-07
Mar-07
0
Jan-07
0
Sources: Bloomberg, Erste Group Research
Bucharest
November 2010
AAFBR Conference
12
ERSTE GROUP
Outlook on the CEE Region
Financial Markets & Debt
Fritz Mostböck, CEFA
Head of Group Research
AAFBR Conference
Bucharest, November 2010