Central Europe is increasing its level of trade and exports despite a slowdown in Western Europe, a...
Central Europe is increasing its level of trade and exports despite a slowdown in Western Europe, according to Rory Ladmann, fund manager at Thames River Capital
However, some Eastern European countries that are pre- paring themselves for convergence with the West are experiencing a slowdown in growth against the difficult economic conditions.
The economies in Hungary and the Czech Republic have both been growing at a fast rate, while Poland has slowed and Russia has suffered a slight slowdown.
Convergence criteria being met, with inflation continuing to come down across the region, keeping Central European economies on track to join the EU.
Year-to-date changes in the levels of indices in Hungary, Russia, Poland and the Czech Republic all show positive growth. Of the four markets, the Russian RTS Index has been the best performing this year, up 24.95% in dollar terms.
The next best performer is the Hungarian Budapest Stock Exchange Index, which has returned 9.46%, also in dollar terms, compared to 5.51% from the Czech Prague Stock Exchange PX 50 Index and 5.69% from the Polish WSE WIG Index.
Stuart Richards, investment manager at Barings, says the main driver for Eastern European markets has been convergence. He expects accession to occur for Hungary, Poland and the Czech Republic around 2007.
Hungary has already passed 22 of the 29 charters needed for accession and the Czech Republic and Poland have passed 20, he says.
According to Ladmann, the Czech Republic and Hungary are in different stages of their economic cycles to Poland and both continue to grow at a faster pace than Western Europe.
However, in the Czech Republic and Hungary, GDP per capita is $5,000 while in Western Europe it is $20,000, says Ladmann. Exports and domestic investments have been driving both countries. Outside companies are moving into the motor industry, financial services, banking and telecommunications sectors due to the low costs.
Ladmann says: 'In the Czech Republic, interest rates are low ' under 5% ' and there is little scope to cut rates further. In Hungary, inflation is a little higher and the government is unlikely to cut interest rates until it falls.'
Richards expects GDP growth to be 4% in Hungary this year and 3.5% in the Czech Republic.
Poland has slowed down, according to Ladmann, who forecasts 1.1% GDP growth, because inflation problems are putting an upward pressure on interest rates, dampening growth. The Polish central bank has not been prepared to reduce interest rates, but Ladmann hopes the new government, which came into power late last year, will allow rates to fall.
Ghadir Abu Leil-Cooper, director at Barings, says Russia will grow around 4% this year, even if oil prices go down to $12 a barrel. President Putin's structural reform programme has helped attract foreign investment to the country.
Ladmann says Russia has faced a slight slowdown this year due to the weaker oil prices, but he expects GDP to be around 5%.
Czech Rep, Poland and Hungary join EU 2007.
Interest rates low in Czech Republic.
Inflation is under control.
OIl prices are weakening.
Polish interest rates a problem.
Russian and Polish growth has slowed.
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