Vodice, 26 May 2018 Dan Bucsa, Chief CEE

Transcript:Vodice, 26 May 2018 Dan Bucsa, Chief CEE:
Vodice, 26 May 2018 Dan Bucsa, Chief CEE Economist, UniCredit Bank AG, London Hrvoje Dolenec, Chief Economist, Zagrebacka Banka Discussion on euro adoption in Croatia Euro adoption: no magic cure 2 Importance of real convergence Joining the banking union – prevent a new Slovenia (and Bulgaria) ERM II Ratings Impact of euro membership on borrowing costs for companies In or out: Slovakia vs the Czech Republic Topics 3 Source: Eurostat, UniCredit Research 1.1. How important is real convergence for EUR adoption? A political negotiation. Not an indication of performance after adoption. 4 Source: Eurostat, UniCredit Research 1.2. The quality of policies is much more important than the FX regime The convergence to EU average slowed after the global financial crisis. 5 Source: Eurostat, UniCredit Research 1.3. Productivity growth needs to accelerate to ensure convergence Croatia has done better after the GFC. Per-capita GDP at 70% of EU avg. reached in 7 years if growth accelerates by roughly 2pp/year vs. EU Source: Eurostat, European Commission, national statistical offices, UniCredit Research 6 2. Joining the banking union to avoid "accidents" and advance integration Slovenia's public debt exploded when the GFC started due to state-own bank losses Bulgaria's CDS rose by 80bp and the country was downgraded to junk by S&P when CCB went bankrupt in late 2014 Source: Eurostat, national statistical offices, UniCredit Research 7 3.1. Strong support from capital flows for most CE currencies Extended basic balance = current account + foreign direct investment + EU funds Source: Eurostat, European Commission, national statistical offices, UniCredit Research 8 3.2. Foreign direct investment supplemented by EU funds EU members have low FDI compared to the past… … but most of them supplement FDI with EU funds Source: Eurostat, national statistical offices, Bloomberg, JP Morgan, UniCredit Research 9 3.3. Currency valuation – no need to move EUR-HRK before peg The HRK is fairly valued when adjusting the effective exchange rate with PPI … … and undervalued when adjusted for unit labour costs Source: Moody's, S&P, UniCredit Research 10 4. The eurozone is not a guarantee for preserving the investment grade Average rating from Moody's and S&P Source: ECB, Eurostat, UniCredit Research 11 5. The ECB managed to align risk premia for eurozone companies One of the unsung achievements of monetary easing Source: Eurostat, national statistical offices, Bloomberg, JP Morgan, UniCredit Research 12 6. Czech Republic vs Slovakia: out vs in – discipline is key