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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
    demand rebounds.
  • 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.