Erste Group Research
Special Report | Fixed Income | Central and Eastern Europe06 February 2012
Erste Group Research – CEE Bond Outlook 2012
Supply of government securities in 2012
With the exception of Hungary and Croatia, CEE6 countries have beenadvancing in their fiscal consolidation. Although there is some slippage inthe pace of consolidation compared to their original plans in countries wheregeneral elections were held (Poland, Croatia in 4Q11) or will soon takeplace (Slovakia in March 2012), we have seen decisive action being takenby governments to curb the gap right after the elections (Poland).Governments in CEE6 are also to continue in their fiscal consolidation thisyear and, after the reduction of the deficit from 6.4% in 2010 to an estimated4.1% of GDP on average in 2011, the deficit is to further shrink to 3.6% of GDP on average in 2012. The newly-formed the six pack should strengthenbudget surveillance and thus make the consolidation process lessvulnerable to sudden turnarounds in politics in the years beyond 2012.
Fiscal deficit 2012F(% of GDP) Fiscal deficit in CEE6 (% of GDP)
G e r m a n y T u r k e y I t a l y U k r a i n e A u s t r i a N e t h e r l a n d s R o m a n i a H u n g a r y C z e c h R e p . P o l a n d S e r b i a B e l g i u m S l o v a k i a C r o a t i a F r a n c e S p a i n U K
2 0 1 0 2 0 1 1 E 2 0 1 2 F
Source: EC Autumn Forecasts, Erste Group Research
When we translate the deficits into monetary terms under conservativeassumptions that governments will not raise money through the sale of stateassets, CEE6 governments would need to issue about EUR35bn of newdebt in 2012. That is a slightly lower volume than in 2011 and a relativelysmall portion compared to estimated net issuance in the Euro Area of aboutEUR 300bn, excluding Ireland, Greece and Portugal, which are under theIMF program. French government securities will contribute about one thirdof overall net issuance in the Euro Area in 2012.On top of the new debt, CEE6 governments have to rollover redeeming debtworth EUR 72bn (about 8% GDP on average), predominantly in the localcurrency. A more challenging situation will be the rollover of maturing Italian,Spanish, French and Belgium debt worth 13.5-20.5% of their GDP, whereany slippage in fiscal consolidation may be penalized by a reduced rollover,especially by non-residents. Of course, the ECB’s generous LTROs willboost demand, but mainly at the short-end.
Fiscal consolidation advancesfurther in 2012Treasury funding needs shouldtotal EUR 35bn in CEE6Rollover of redeeming debt willbe challenging mainly in EuroArea