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Environment to remain favourable for Central and Eastern Europe next year

29.12.2015

With Euro Area growth expected to firm, oil prices subdued and interest rates very low thanks to the ECB´s Quantitative Easing, the environment will remain favorable for Central and Eastern Europe (CEE) next year. All in all, growth should surpass potential in both 2016 and 2017. At the same time numerous risks remain on a country level such as underperfor­mance in Europe, geopolitical tensions or the Fed tightening.

2015 was a good year for CEE, with demand in Europe on the rise, oil price falling and global liquidity ample. However, once again only EU-CEE has been able to benefit fully, with growth at post-2008 highs and macroeconomic imbalances absent. Capital markets have taken notice, with risk premia falling and the region solidifying its status of a “safe haven” for investors in emerging markets. Elsewhere the picture has been more nuanced. Strong Euro Area growth has helped pull Croatia and Serbia out of recessions, but growth remains subpar due to structural rigidities and the need to tackle large fiscal deficits and debt. Turkey has disappointed as well, with growth and financial markets hammered by policy inaction and, until recently, by heightened political uncertainty. Russia and Ukraine, meanwhile, remain mired in deep recessions, with the former hit hard by the collapse in oil prices and the EU-US sanctions and the latter struggling to cope with the loss of major production capacities in the east.

GDP change in % Forecast for 2016 Forecast for 2017
EU Members
Bulgaria 3,0 2,9
Croatia 1,1 1,5
Poland 3,7 3,8
Romania 3,9 3,5
Slovakia 3,0 3,0
Slovenia 1,9 2,5
Czech Republic 2,3 3,0
Hungary 2,8 2,8
EU candidates and others
Bosnia-Herzegovina 3,0 3,4
Russia -0,9 1,2
Serbia 1,7 2,1
Turkey 3,0 3,3
Ukraine 2,0 2,5

"As the year draws to a close, there have been signs of a shift in trends High-frequency indicators such as consumer sentiment, purchasing managers´ indices, industrial production and exports suggest that growth in the EU-CEE may have peaked, while it accelerated in Serbia, Croatia and Turkey, and appears to be bottoming out in Russia and Ukraine," said Lubomir Mitov, CEE chief economist at UniCredit.

In Russia, a listless recovery looks likely to begin by the middle of next year and limp along into 2017, while Ukraine´s growth will languish near 2 percent both years.

Unlike public investment, private consumption and investment are likely to gain momentum. Private investment should be supported by improved confidence, rising corporate profitability and stepped-up bank lending. Private consumption would benefit from improving labor markets, stronger wage growth and a rebound in consumer credit.

Despite the benign outlook numerous risks remain. Key among those is underperformance in Europe. A slowdown in China would mostly affect Russia and Ukraine, while the Fed tightening is primarily a risk for Turkey, Croatia and Serbia.

 

NOTE

Ukrsotsbank is one of the largest universal banks of Ukraine, operating in the local market since 1990. The bank offers full range of services to individuals and corporate clients.

The renovated Ukrsotsbank emerged on 31 October 2016 as a result of strategic deal whereby 99.9% of Ukrsotsbank shares have been transferred from UniCredit Group to ABH Holdings S.A. (АВНН) in exchange for a minority 9.9% stake in ABHH. Thus, the bank has combined 26-year-old traditions of Ukrsotsbank’s client-centric attitude, European quality of service inherent to UniCredit, as well as international banking expertise of ABHH in a number of European countries including CIS. Thanks to the successful synthesis and synergy of the two assets of ABHH in Ukraine, Ukrsotsbank and Alfa-Bank, the banking market of Ukraine will see the rise of a new stronger financial institution. This, in turn, will spur up technological advance, increase efficiency, improve quality of service for the clients, reduce cost of banking services whereas their range will inevitably expand.

The extensive retail network of Ukrsotsbank consists of 237 branches, its headcount reaching nearly 5 thousand employees.


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