Strong rebound, fragile recovery
- Activity is rebounding in CEE as restrictions are being removed, but it remains well below the
levels registered before the COVID-19 crisis. Moreover, the recovery is facing many risks.
- Governments and central banks have implemented sizeable support programs that range
from 3.5% of GDP in Russia to 23.5% of GDP in Czechia.
- Support programs differ in size, scope, efficiency and speed of implementation. These
characteristics will shape the recovery in 2H20 and 2021.
- The biggest risk for CEE economies is a second wave of the pandemic, even if restrictions
are not as tight as in March-May 2020.
- In EU-CEE1, we expect GDP to fall by 8.3% in 2020 and grow by 7.3% in 2021. Western
Balkan economies could evolve similarly.
- Russia’s economy could contract by around 5.4%in 2020, with a 3.8% rebound next year.
- In Turkey, GDP could fall by approximately 5.6% this year and grow by 6.6% in 2021.
- We expect additional rate cuts in Czechia, Romania, Russia, Serbia and Turkey. Only
Czechia and Poland might consider raising rates in 2021.
- Inflation targets could be met in 2020-21 but may be threatened thereafter if domestic
- According to our models, the CZK, the HUF and the PLN are undervalued, but poor trade
data and volatile risk appetite may cut potential rallies short; the RUB, RON and RSD are
- ROMGBs and ROMANI EUR remain our top picks in the region, as the rating downgrade
risk previously priced in to the bonds could continue to diminish.
- OFZs, POLGBs and long-end CZGBs offer attractive valuations but face FX risks.
- The EU’s Recovery and Resilience Facility is a game changer for EU-CEE but not in the
next twelve months.
Source: UniCredit Research - CEE Quarterly, 25 June 2020, Executive summary
1 EU-CEE includes Bulgaria, Croatia, Czechia, Hungary, Poland, Romania, Slovakia and Slovenia, all CEE countries that are members of the EU.