Erste Group: CEE Macro/Fixed Income Daily

Analysts’ Views: RO Politics: The Social-Liberal Union (USL) swept the board in yesterday’s local elections, raking in between 50% and 65% of the vote according to latest exit polls. The current ‘independent’ mayor of Bucharest, Sorin Oprescu, who was actually backed by the socialist-liberals, won a new mandate managing to score 65-66% of votes amid a pretty low turnout of around 44%. This is usually a good guidance for what we should expect in the next general elections later in the year (November) and a shift in power to the USL looks likely. USL is in the lead in all polls and is likely to remain there especially after the 8% hike in public wages (effective from June) and the more lenient approach insofar as public spending is concerned. We see 5-year T-bond yields at 6.8% in December and an FX rate of EURRON 4.45. SK Macro: Industrial production continued to advance further in April, fuelled by car production. The launch of production at new car lines aided economic growth in 1Q12 and the positive effect was evident in April figures too. Production increased by 0.3% m/m (on an annual basis, production growth slowed down slightly from 12% seen in March to 11% in April). Positive industrial production was reflected also in foreign trade figures, which posted a huge surplus again in April, at EUR 450mln. That is equivalent to 4.6% of GDP on a 12-month rolling basis. Strong growth should be supportive for the narrowing of the fiscal deficit and reduce the upward risk for yields if there is any slippage in fiscal consolidation from a political perspective. TR Macro: Industrial production in May posted 1.8% growth over last year, above the market consensus of around 0.3% and our expectation of 0.9%. Seasonally-adjusted production was up 1%, confirming the relatively strong momentum following the previous month’s 0.7% level. The outcome is, however, still in line with the expected slowdown in economic activity. Indeed, growth is likely to moderate over the next couple of months, mainly due to the lagged impact of the CBT’s tighter monetary policy in response to high inflation. The CBT is to start easing the average funding rate to about 7%-8% by the third quarter from its current range of 9.5%-11% as inflation drops to single digits by July. We expect 2y bond yields to fall to 8% by year end.For more details please go to our Comments section.

Erste Group: CEE Macro/Fixed Income Daily

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