CEE Central Bank Report: 1st October 2020 Report

Updated: Oct 16

By: The Quinnipiac University Economics Research Team, Kyle Del Balso

Last updated: 15 October 2020

This report includes an update on the

· Czech Republic latest announcement on inflation September 2020 inflation figures

· Hungary’s Monetary Council Meeting of 22 September 2020 on interest rates

· Poland’s Monetary Policy Council Meeting of 7 October 2020 on interest rates

· Romania’s Foreign Direct Investment Survey in 2019

· Slovakia’s special announcement for September on GDP, labor markets, and inflation rates.



Photo by Jaromir Kavan on Unsplash

Czech Republic

Czech National Bank’s (CNB) - https://www.cnb.cz/en/

Inflation

According to figures released on October 12, Czech’s price level increased by 3.2% year on year in September 2020. This number is lower than it was in August but remains above the upper boundary of the tolerance band around the CNB’s 2% target. The rise in inflation is expected to remain above 3% until the end of this year, “as firms’ loss of revenue during the coronavirus pandemic and growth in their costs will foster continued price growth despite a deep decline in demand and overall economic activity. Inflation will fall markedly at the start of next year in connection with lower growth in domestic costs, a slightly appreciating koruna and a cooling of the labour market.” For more information on inflation from the Executive Director of the Monetary Department, Petr Král, click here.



Photo by Timi Keszthelyi on Unsplash

Hungary - https://www.mnb.hu/en

Interest Rate Update

Reviewing the latest economic and financial developments, Hungary’s Monetary Council decided again to hold the interest rate at 0.60%. According to the Council’s assessment on 22 September, “the 0.60 percent base rate supports price stability, the preservation of financial stability and the recovery of economic growth in a sustainable manner”. The Bank also commented on expected GDP numbers, stating it is “expected to decline by between 5.1 and 6.8 percent in 2020, which may be followed by growth between 4.4 and 6.8 percent in 2021. Economic performance may recover to its pre-crisis level by the turn of 2022.” For more information on the interest rate and other Monetary Council analysis, click here.



Photo by Poland Kamil Gliwinski

Poland - https://www.nbp.pl/homen.aspx?f=/srodeken.htm

Interest Rates

Poland’s Monetary Policy Council, as of 7 October 2020, decided to keep the NBP interest rates unchanged. According to the NBP, they will continue market operations such as the “purchase government securities and government-guaranteed debt securities on the secondary market as part of the structural open market operations. The timing and scale of the operations will depend on the market conditions. Furthermore, NBP will offer bill discount credit aimed at refinancing loans granted to enterprises by banks.”

The goal in these market operations is to ensure liquidity in secondary markets and boost the impact of NBP interest rate cuts on the economy. Overall, the NBP monetary policy easing “mitigates the negative economic impact of the pandemic, supports economic recovery and reduces the risk of inflation falling below the NBP inflation target in the medium term. Due to its positive impact on the financial situation of debtors, it is also conducive to strengthening of the financial system stability.”

For more on the Monetary Policy Council updates, click here.



Photo by Alisa Anton on Unsplash

Romania - https://www.bnr.ro/National-Bank-of-Romania-1144.aspx

Foreign Direct Investment

The NBR in Romania released the following on its foreign direct investment in 2019:

  1. FDI net flow in 2019 stood at EUR 5173 million, of which:

  • EUR 5021 million enterprises’ equity (equity worth EUR 2238 million, plus reinvestment of earnings worth EUR 2783 million);

  • EUR 152 million debt transactions with foreign direct investors and non-resident fellow companies (debt less claims).

  1. FDI stock as at 31 December 2019 amounted to EUR 88304 million of which:

  • EUR 61352 million equity positions, including reinvestment of earnings (69.5 percent);

  • EUR 26952 million debt positions in relation to foreign direct investors and non-resident fellow companies (debt less claims) (30.5 percent).

  1. Income from FDI in 2019 amounted to EUR 7040 million, out of which:

Net earnings from equity were EUR 6346 million, representing the net profit of profitable FDI enterprises, tantamount to EUR 9232 million, less the loss of EUR 2887 million of FDI enterprises that incurred losses.

Net income from interest, computed by subtracting from the interest received by foreign direct investors on lending to their enterprises in Romania, the interest paid by foreign direct investors for the borrowing from their enterprises in Romania – either directly or via fellow companies, stood at EUR 694 million.”

For a more detailed report on the 2019 FDI results, click here.



Photo by Palo Kertys on Unsplash

Slovakia - https://www.nbs.sk/en/home

Special Announcement

The National Bank of Slovakia (NBS) has not had a major announcement yet in October. Their NBS Monthly Bulletin for September 2020 states “euro area GDP dropped by 11.8%, quarter on quarter, in the second quarter of 2020. That decline was driven mainly by household consumption and, to a lesser extent, by investment demand and net exports. Short-term indicators at the start of the third quarter point to a continuing, albeit moderate, economic recovery. Industrial and construction production levels were higher in July than in the second quarter, but remained below their pre-crisis January levels. Retail sales in July were also up from the second quarter, rising close to pre-pandemic levels. The Economic Sentiment Indicator continued to rebound in August, but still remained below its long-term average. The strongest increases in confidence were in services and retail trade. Industry confidence also continued to improve.

In Slovakia, GDP declined by 8.3%, quarter on quarter, in the second quarter of 2020, bringing GDP for the first half of the year down to a level last seen in 2015. All components fell significantly, and domestic demand recorded the sharpest drop. Investment activity across the economy continued to decline, reflecting mainly negative contributions from the car manufacturing and transportation segments. Consumer demand weakened. Although hardest hit by falling exports, the car industry has managed the speediest recovery. Since manufacturing firms have largely been running down inventory for production, the decline in imports has been greater than export data would imply. According to monthly data, the economy bottomed out in April and then began to recover. In July, short-term economic indicators were moving close to pre-crisis levels, thus implying the continuing recovery of economic activity. The Economic Sentiment Indicator for Slovakia improved further in August, supported by a strengthening of all components apart from construction confidence.

Employment declined by 1.1% in the second quarter compared with the first quarter. The monthly employment data for July indicated a continuing adverse trend. The unemployment rate remained unchanged in August. The average wage increased in July by 1.8%, year on year, amid a gradual pick-up in the number of hours worked, which is slowly rising back towards pre-crisis levels.

The annual HICP inflation rate slowed to 1.4% in August. Food inflation accounted for most of that slowdown. Net HICP inflation edged down to 2.4%, but remains higher than projected.”

For the full report:

http://www.nbs.sk/_img/Documents/_MonthlyBulletin/2020/mb0920en.pdf

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