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  • 1. PRIVATE WEALTH RAIFFEISEN FORUM 2011 Ukraine: View from Global Pespectictive P avel Mertlik Cheif Economist Raiffeisenbank a.s. (Czech Republic) member of Raiffeisen Bank International Group Kiev 14 th June 2011
  • 2. Organization
    • Global Macroeconomic Outlook
    • Global Stock Markets
    • Large Non-European Emerging Markets
    • Oil Price
    • "The Greek Tragedy", Absence of Sustainable Growth M odel in the European South, and Institutional Crisis of the Eurozone - The Key Risk factors to Growth in Europe
    • Thoughts of Ukraine
    • Appendix: CEE Inflation Risks
    • Disclaimer
  • 3. LEADING INDICATORS AT THE TOP Is the economic recovery tipping? Source: Thomson Reuters, Raiffeisen RESEARCH ifo index ISM index manufacturing 76 82 88 94 100 106 112 2006 2007 2008 2009 2010 2011 30 36 42 48 54 60 66
  • 4. USA: LABOUR MARKET REMAINS WEAK SPOT of the recovery – but it is improving! * Private nonfarm payrolls, monthly values, Index end of recession = 100 Source: Thomson Reuters, Raiffeisen RESEARCH 98.0 99.0 100.0 101.0 102.0 103.0 104.0 105.0 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 Mar.91 Nov.01 Jun.09 ø of the 9 recessions after WW II
  • 5. ECONOMIC PROSPECTS Germany is the Eurozone´s pacemaker Gov. consumption Exports Investments in machinery&equip. Priv. consumption -4.7% GDP real -0.1% 3.5% 3.6% 0.4% 1.4% 2.9% 2.3% 0.7% -18.8% -14.3% 13.8% 10.3% 9.7% 9.6% * forecast 2.1% 1.4% 0.8% 6.1% 5.5% 2011* 2010 2009 change in % yoy 2012*
  • 6. EUROZONE: Two speeded economic recovery continues * Forecast Source: Eurostat, Raiffeisen RESEARCH Country 2009 2010 2011* Austria -3.9 2.0 3.3 Germany -4.6 3.5 3.6 France -2.5 1.5 2.3 Belgium -2.6 2.1 2.5 Netherlands -3.9 1.8 2.7 Finland -8.1 3.1 3.5 Ireland -7.6 -1.0 1.2 Italy -5.2 1.2 0.9 Spain -3.7 -0.1 0.8 Portugal -2.5 1.4 -1.0 Greece -2.0 -4.5 -3.0 Eurozone -4.0 1.7 2.1 Japan -6.3 4.0 -0.2 2012* 2.0 2.1 2.1 2.0 2.1 2.3 1.6 1.5 1.3 1.0 1.1 1.9 2.6 USA -2.6 2.8 2.7 3.0
  • 7. Inflationary pressures mainly due to higher oil prices – but core inflation also bottoming out Source: Thomson Reuters, Raiffeisen RESEARCH Consumer prices (% yoy) EUR core rate (i.e. excl. food&energy, % yoy) -1.0 0.0 1.0 2.0 3.0 4.0 5.0 2005 2006 2007 2008 2009 2010 2011 2012 Forecast
  • 8. EUR: Pricing power of firms is increasing only modestly Source: Thomson Reuters, Raiffeisen RESEARCH -1.6 -0.8 0.0 0.8 1.6 2.4 3.2 1997 1999 2001 2003 2005 2007 2009 2011 69.0 72.0 75.0 78.0 81.0 84.0 87.0 Core rate (% yoy) Capacity utilisation (r.h. scale)
  • 9. ECB DRAINS LIQUIDITY Composition of ECB lending to the banking sector ECB financing volume before Lehman bankruptcy Amount outstanding, EUR bln. 0 100 200 300 400 500 600 700 800 900 Jan.07 Jul.07 Jan.08 Jul.08 Jan.09 Jul.09 Jan.10 Jul.10 Jan.11 0 50 100 150 200 250 300 350 400 450 Main Refinancing Operations (MRO) Long Term Refinancing Operations (LTRO) Deposit facility (r.h.s., liquidity absorbing)
  • 10. RBI INFLATION MODEL increasing core rate ahead 0.00 0.50 1.00 1.50 2.00 2.50 3.00 Nov.98 Nov.00 Nov.02 Nov.04 Nov.06 Nov.08 Nov.10 Nov.12 HICP ex energy & food Model-fit Forecast
  • 11. INTEREST RATE FORECATS: ECB continues with normalisation process Source: Thomson Reuters, Raiffeisen RESEARCH current Sep-11 Dec-11 Key rate 0 – 0.25 Libor 3m 0.31 Yield 10y 3.06 0.70 3.80 1.00 4.00 USA Key rate 1.25 Euribor 3m 1.33 Yield 10y 2.97 1.75 2.00 3.60 2.00 2.20 3.80 Eurozone 0.75 0 – 0.25
  • 12. EUR/USD: A ROLLERCOASTER RIDE 1.15 1.20 1.25 1.30 1.35 1.40 1.45 1.50 1.55 1.60 Jan-07 Sep-07 May-08 Jan-09 Sep-09 May-10 Jan-11 Sep-11 EUR/USD Fed announces $300 bn purchase of Treasuries Cascade of government debt discussion triggered by Greece Speculations on further Quantitative Easing by the Fed start Fed announces $500 bn purchase of MBS EU and IMF approve EUR 750 bn protective shield ESFS Fed announces $600 bn purchase of Treasuries EU Commission successfully issues EUR 5 bn bonds for Irish aid package ECB interest rate decision May; fear of Greece haircut
  • 13. EUR/CHF Franc currently overvalued? EUR/CHF Fair value of EUR/CHF according to PPP 1.38 1,0 1,2 1,4 1,6 1,8 2,0 2,2 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13
  • 14. STOCK MARKET INDICES Does the recovery continue? Source: Thomson Reuters, Raiffeisen RESEARCH 2003 2004 2005 2006 2007 2008 2009 2010 50 100 150 200 250 300 350 400 450 ATX DAX 30 DOW JONES INDUSTRIALS 50 100 150 200 250 300 350 400 450
  • 15. CURRENT BULL MARKET still young in duration S&P 500, Performance calculated on daily closing prices except * based on monthly average price Source: Robert Shiller data, Thomson Reuters, Raiffeisen RESEARCH 1990-00 1949-56* 1932-37* 1982-87 1974-80 Average 52 months, 150 % 1942-46* 2002-07 since 2009 26 months 99 % 1966-68 1970-73 1987-90 1962-66 1957-61 0% 50% 100% 150% 200% 250% 300% 350% 400% 450% 0 20 40 60 80 100 120 140 Bull market duration (in months) Advance (%)
  • 16. STOCKS & ECONOMY growth supportive Source: Thomson Reuters, Raiffeisen RESEARCH 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 -60 -40 -20 0 20 40 60 80 80 85 90 95 100 105 110 115 120 DAX % yoy Ifo-Index (r.h.s.)
  • 17. Q1 EARNINGS SEASON impressive Source: Bloomberg, Raiffeisen RESEARCH -60% -40% -20% 0% 20% 40% 60% 80% Q2 2009 Q3 2009 Q4 2009 Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011 Consensus estimates ahead of the quarter Reported earnings growth for the quarter
  • 18. RISING PROFITS…* but the air is getting thinner * Trailing 12 months earnings (ln) Source: Thomson Reuters, Raiffeisen RESEARCH MSCI USA Trend Earnings Growth 2.0 2.5 3.0 3.5 4.0 4.5 74 77 80 83 86 89 92 95 98 01 04 07 10 MSCI Europe 2.0 2.5 3.0 3.5 4.0 4.5 5.0 74 77 80 83 86 89 92 95 98 01 04 07 10 Trend Earnings Growth
  • 19. VALUATIONS* European stocks offer more „value“ * price-to-book ratio, broad datastream indices Source: Thomson Reuters, Raiffeisen RESEARCH 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 0.50 1.00 1.50 2.00 2.50 3.00 3.50 4.00 4.50 5.00 Eurozone USA
  • 20. VALUATIONS attractive in relative terms Source: Thomson Reuters, Raiffeisen RESEARCH 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 1 2 3 4 5 6 7 8 9 10 DAX dividend yield Euro Stoxx 50 dividend yield 10Y German Bund yield 1 2 3 4 5 6 7 8 9 10
  • 21. FACTORS to watch in H2
    • + Many companies approach record cash levels and will therefore increase their pay-outs towards shareholders
    • + M&A activity heatens up
    • + Corporate investment recovers
    • o Earnings still in the up-trend, however, decreasing growth dynamic expected
    • o Valuations attractive in relative terms; European stocks substantially cheaper than US ones
    • o Solid economic growth supportive
    • - Risk factors: Sovereign debt crisis and geopolitical conflicts
  • 22. BIGGER PART OF THE BULL MARKET BEHIND US still some upside potential Source: Thomson Reuters, Raiffeisen RESEARCH 9000 9500 10000 10500 11000 11500 12000 12500 13000 13500 14000 Dec-09 Mar-10 Jun-10 Aug-10 Nov-10 Feb-11 May-11 Aug-11 Nov-11 Feb-12 4000 4500 5000 5500 6000 6500 7000 7500 8000 8500 9000 DJIA DAX (r.h. scale) Forecast
  • 23. EMERGING MARKETS: soft landing * GDP-weighted PMI average including Brazil, Mexico, China, India and South Africa 30 35 40 45 50 55 60 65 Apr.06 Feb.07 Dez.07 Okt.08 Aug.09 Jun.10 Apr.11 EM PMI* ISM Manufacturing
  • 24. PRO EMERGING MARKETS I Economic outlook stays positive *estimates, Source: Raiffeisen Research, for ** IMF BIP % p.a. 2009 2010 2011* 2012* China India Brazil Mexiko South Africa -1,8 2,8 3,3 3,5 7,2 9,5 8,4 8,4 1,7 6,9 5,4 5,7 CEE -5,7 6,0 4,7 4,2 9,1 10,3 9,5 9,3 7,5 8,7 8,5 8,5 -0,6 7,5 4,9 5,2 -6,1 5,5 4,4 4,2 Developing Asia** ASEAN-5** -1,7 3,1 3,6 3,9 Latin America**
  • 25. PRO EMERGING MARKETS II Total debt still rather low Total debt in % of GDP, Source: EU Commissione, Thomson Reuters, Raiffeisen RESEARCH 0 50 100 150 200 250 300 Euro area Austria China* India Brazil Mexico Public debt Private debt
  • 26. BUT: Substantial inflation risks Source: Thomson Reuters, Raiffeisen RESEARCH CPI in %, p.a. -4 -2 8 10 12 14 16 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 China India Brazil South Africa Mexico 0 2 4 6
  • 27. … AND INTEREST RATE HIKES around the EM globe Source: Thomson Reuters, Bloomberg base rate current last change change Latin America Brazil SELIC overnight rate 12,00 20.04.2011 0,75 Chile Discount rate 5,00 - - 0,50 Colombia Repo rate 4,00 31.05.2011 0,50 Mexico Repo rate 4,50 - - - - Peru Reference rate 4,25 11.05.2011 0,75 Asia China Base lending rate (1y) 6,31 06.04.2011 0,25 Hong Kong Base rate 0,50 - - - - India Repo rate 7,25 03.05.2011 0,75 Indonesia Reference rate 6,75 - - - - Malaysia Overnight policy rate 3,00 05.05.2011 0,25 Philippines Reverse repo rate 4,50 05.05.2011 0,50 Singapore 3m interbank 0,31 - - - - South Korea Base rate 3,00 10.03.2011 0,25 Taiwan Discount rate 1,75 01.04.2011 0,12 Thailand 1-day repo rate 3,00 01.06.2011 0,25 Africa and Middle East Egypt Deposit rate 8,25 - - - - South Africa Repo rate 5,50 - - - - Israel Repo rate 3,25 26.05.2011 0,25 Kuwait Discount rate 2,50 - - - - Saudi Arabia Reverse repo rate 0,25 - - - - 12.05.2011
  • 28. EM MONETARY POLICY MORE RESTRICTIVE: China China China Source: Thomson Reuters 5 10 15 20 25 30 35 40 Okt.02 Aug-05 Jun-08 Apr-11 -2 0 2 4 6 8 10 12 M2 (% yoy) Loan growth (% yoy) CPI (% yoy, r.h.s.) 6 8 10 12 14 16 18 20 22 Apr.05 Apr.06 Apr.07 Apr.08 Apr.09 Apr.10 Apr.11 4,0 4,5 5,0 5,5 6,0 6,5 7,0 7,5 8,0 Reserve Requirement Ratio Small banks (%) Reserve Require- ment Ratio Big banks (%) Base lending rate, 1Y, (%, r.h.s.)
  • 29. EM-CURRENCIES: Strong against the USD BUT weaker against the EUR Asian currencies to EUR Latin American currencies to EUR Source: Thomson Reuters 70 80 90 100 110 120 130 May-08 Feb-09 Nov-09 Aug-10 May-11 China India Indonesia Asia 60 70 80 90 100 110 120 May-08 Feb-09 Nov-09 Aug-10 May-11 Argentina Brazil Mexico Latin America
  • 30. EM STOCKS – outperformance? Source: Thomson Reuters MSCI regional overview EM: relative perormance MSCI WORLD MSCI EM ASIA MSCI EM LATIN AMERICA MSCI EM EMEA MSCI EM MSCI EM EASTERN EUROPE -8,00% -6,00% -4,00% -2,00% 0,00% 2,00% 4,00% 6,00% ytd Performance since 01/04/11 75 85 95 105 115 125 May-08 Jan-09 Sep-09 May-10 Jan-11 MSCI EM vs. MSCI World
  • 31. EM Bond Markets current yield level Asian local bond yields Latin American local bond yields 4% 8% 12% 16% 20% May-08 Feb-09 Nov-09 Aug-10 May-11 0% 20% 40% 60% 80% Latin America Brazil Mexico Argentina (r.h.scale) Source: Thomson Reuters 2% 4% 6% 8% 10% May-08 Feb-09 Nov-09 Aug-10 May-11 6% 10% 14% 18% 22% China India Asia Indonesia (r.h.scale)
  • 32. OIL MARKET Crude oil & equities in lockstep Source: Thomson Reuters, Raiffeisen RESEARCH 2008 2009 2010 2011 20 40 60 80 100 120 140 160 600 700 800 900 1000 1100 1200 1300 1400 1500 S&P 500 Composite Brent (USD per barrel)
  • 33. OIL MARKET Brent/WTI differential to continue Source: Thomson Reuters, Raiffeisen RESEARCH 60 70 80 90 100 110 120 130 Jan-10 Mar-10 May-10 Jul-10 Sep-10 Nov-10 Jan-11 Mar-11 May-11 USD per barrel Brent WTI
  • 34. Share of global oil production* Spare capacity is getting tight! *31.12.2009 Source: BP-Statistical review of world energy 0.8% 1.0% Oman 3.0% 1.5% Qatar 1.6% 3.2% UAE 0.4% 3.2% Kuwait 4.4% 5.3% Iran 2.6% 12.0% Saudi Arabia 0.5% 2.0% Libya 0.2% 0.5% Syria n.a. 0.4% Yemen 2.7% 2.0% Algeria 2.1% 0.9% Egypt Gas Oil
  • 35. OIL MARKET OPEC reserve capacity Source: Bloomberg, IEA, Raiffeisen RESEARCH 0 50 100 OPEC reserve capacity Global oil production million barrels per day 0 1 2 3 4 5 6 Libya oil production Residual spare capacity million barrels per day
  • 36. OIL MARKET Emerging market demand still robust Source: IEA, Raiffeisen RESEARCH Oil demand growth - China 0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011e yoy growth
  • 37. OIL MARKET Oil price the biggest risk itself * yoy, 4-week average Source: IEA, Raiffeisen RESEARCH US gasoline demand* 8.5 8.6 8.7 8.8 8.9 9 9.1 9.2 9.3 9.4 9.5 J F M A M J J A S O N D million barrels per day 2009 2010 5-year avg 2011
  • 38. OIL MARKET US crude stocks above average Source: IEA, Raiffeisen RESEARCH US crude stocks 300 310 320 330 340 350 360 370 380 Jan. Feb. Mar. Apr. May Jun. Jul. Aug. Sep. Oct. Nov. Dec. million barrels 5-year average 2011
  • 39. OIL MARKET Non-OPEC production growth? Non-OPEC supply: 2009-2015* * Change in production vs 2008 Source: IEA -0.8 -0.4 0 0.4 0.8 1.2 Brazil Biofuels Canada Colombia Kazakhstan Russia Azerbaijan USA Mexico Norway UK million barrels per day
  • 40. OIL MARKET OPEC capacity growth takes a breather OPEC crude oil production capacity Source: IEA 33 34 35 36 37 38 2009 2010 2011f 2012f 2013f 2014f 2015f million barrels per day
  • 41. OIL MARKET fundamentals support USD 100 per barrel OPEC spare capacities Source: IEA, Morgan Stanley, Bloomberg, Raiffeisen RESEARCH 0 1 2 3 4 5 6 7 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011e 2012f 2013f 2014f 2015f million barrrels per day
  • 42. OIL MARKET Risk premium expected to decrease… Slide No. Oil price forecasts Source: Raiffeisen RESEARCH 40 50 60 70 80 90 100 110 120 2006 2007 2008 2009 2010 2011e 2012f 2013f USD per barrel old forecast risk premium due to MENA crisis
  • 43. Risk factor EUR-debt crises Yield government bonds 10y (in %) Source: Thomson Reuters Germany Greece Ireland Austria 0 2 4 6 8 10 12 14 16 Oct-08 Feb-09 Jun-09 Oct-09 Feb-10 Jun-10 Oct-10 Feb-11 Portugal Italy Spain
  • 44. GREECE: AUSTERITY MEASURES Are the deficit targets realistic? -18 180 Source: IMF, Greek Ministry of Finance Budget balance (% GDP, inverted) Originally planned budget balance (% GDP) Debt level (% GDP, r.h.s.) Originally planned debt level (% GDP) -6.0 -6.7 -15.6 -10.4 -9.5 -9.3 -9.8 -16 -14 -12 -10 -8 -6 -4 -2 0 2006 2007 2008 2009 2010 2011 2012 0 20 40 60 80 100 120 140 160
  • 45. Greek budget history keeps trust and optimism low Source: Eurostat, EU-Commission Greek budget balance (% of GDP) -18 -16 -14 -12 -10 -8 -6 -4 -2 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 first report to Eurostat (spring of the subsequent year) current status Maastricht limit
  • 46. Contagion from Greek restructuring Who owns Greece government bonds* * estimates Source: IWF, BIS, Raiffeisen RESEARCH EUR bn. Relative share in % ECB 50 15 EU 39 11 IMF 15 4 Greek banks* 45 13 French banks* 20 6 German banks* 26 8 Other euro area banks 19 5 Greek non-banks 50 15 Other investors 81 24 Total 344 100
  • 47. EUROZONE periphery Redemption profile government bonds (EUR bln) Source: Bloomberg, EU Commission, Raiffeisen RESEARCH * between May and December 2011 redeemable bonds Greece Portugal Ireland Spain Italy Total 2011* 31.3 15.6 4.5 109.4 219.3 380.1 2012 33.7 18,0 5.6 94.1 231.9 383.4 2013 30.6 10.8 6.1 73.0 135.9 256.5 2014 31.8 15,8 11.9 62.2 94.8 216.5 2015 20.6 11.5 0.2 40.6 137.7 210.6 2016 15.8 10,0 10.2 30.4 59.0 125.3 2017 23.8 7.0 0.0 30.9 86.0 147.6 2018 10.3 6.9 9.9 16.5 52.1 95.7 2019 25.7 8.7 14.5 28.8 86.5 164.2 2020 5,3 9.2 19.6 31.3 70.0 135.3
  • 48. EUROZONE periphery Latest yield levels Source: Bloomberg, Thomson Reuters, Raiffeisen RESEARCH GR IE PT IT ES Yield (2Y, %) 26.08 11.72 11.29 3.08 3.74 Yield (5Y, %) 17.82 11.90 11.57 4.03 4.88 Yield (10Y, %) 17.05 10.88 9.64 4.82 5.55 Price 2Y (Bid) 69.87 88.52 88.14 98.00 97.36 Price 5Y (Bid) 53.42 72.88 82.08 99.13 93.17 Price 10Y (Bid) 50.98 65.96 63.30 100.08 99.91
  • 49. EUROZONE periphery Public finances 2010 – 2012 (% of GDP) * Budget plan of the greek government: -7.5% (2011) and -6.5% (2012) Source: Spring forecast EU Commission (13 May) Greece Ireland Portugal Italy Spain Budget balance 2010 -10.5 -32.4 -9.1 -4.6 -9.2 Budget balance 2011 -9.5* -10.5 -5.9 -4.0 -6.3 Budget balance 2012 -9.3* -8.8 -4.5 -3.2 -5.3 Debt level 2010 142.8 96.2 93.0 119.0 60.1 Debt level 2011 157.7 112.0 101.7 120.3 68.1
  • 50. EURO ZONE – PUBLIC FINANCES 2011 Budget consolidation shows first impacts Source: EU-Commission, Raiffeisen RESEARCH Budget balance 2011 (% GDP) US Austria Germany Spain Belgium Netherlands Finland Ireland Italy France Portugal Greece Euro Zone Sweden Denmark UK -14 -12 -10 -8 -6 -4 -2 0 20 40 60 80 100 120 140 160 180 Public debt 2011 (% GDP) Maastricht Criteria
  • 51. BUDGET CONSOLIDATION Evaluation of austerity measures
    • How to re-establish confidence given our economic framework ?
    Austria Belgium Ireland Spain Italy Portugal Greece Germany France Netherlands Finland until 2020
    • achieve a 10 % reduction in in public debt/GDP levels (if debt/GDP > 60 % at year-end 2011)
    Which average annual PRIMARY BALANCE is necessary in 2011-2020 to …
  • 52. ASSUMPTIONS * Long term average ESM rate ** in % of GDP Source: EU Commission, Thomson Reuters, Raiffeisen RESEARCH Ireland 2.1   3.9 4.0 4.0 3.9 2.0 1.3 107 119.0 Italy 1.2   4.1 4.7 4.1 4.7 2.0 1.5 54 60.1 Spain 5.5   4.7 6.5* 4.7 21.4 2.0 1.1 129 142.8 Greece 2.3   4.3 6.5* 4.3 11.4 2.0 2.5 87 96.2 2.9   4.1 6.5* 4.1 11.7 2.0 1.6 84 93.0 Portugal                       0.1   2.6 2.6 2.6 2.6 2.0 1.5 48 48.4 Finland 0.4   2.9 3.9 3.9 2.9 2.0 2.0 56 62.7 Netherlands 1.7   3.6 4.0 4.0 3.6 2.0 1.2 87 96.8 Belgium 1.1   2.8 4.3 4.3 2.8 2.0 1.5 65 72.3 Austria 0.8   2.9 3.4 3.4 2.9 2.0 1.4 74 81.7 France 0.7   2.6 3.7 3.7 2.6 2.0 1.6 75 83.2 Germany   lower bound upper bound implicit rate 2010 current yield (5Y) Inflation GDP (real) Target 2020 Debt 2010 Necessary primary balance   interest rate avg. 2011 - 2020 (% yoy) General government debt**
  • 53. EVALUATION Comparison to history, current & plan 2013 3.9 2.10 1997 6.60 1.99 2.1 2.1 2.0 Italy 2013 -0.3 -3.40 2006 3.70 0.15 1.2 1.3 1.0 Spain 2013 3.1 -1.80 1998 4.30 -1.12 5.5 6.2 3.7 Greece 2013 -1.6 -6.50 2000 6.80 -0.41 2.3 3.4 1.2 Ireland 2013 -0,4 -1.10 1992 3.60 -1.57 2.9 3.6 1.4 Portugal 2013 0.8 -1.70 2000 9.60 4.53 -0.4 -0.4 -0.4 Finland 2013 0.8 -2.80 2000 5.60 1.12 0.4 0.8 0.2 Netherlands 2013 1.9 -1.20 2001 6.80 3.35 1.7 1.8 1.4 Belgium 2013 0.1 -1.70 2001 3.40 1.10 1.1 1.4 0.4 Austria 2013 -0.1 -4.50 2001 1.50 -0.96 0.8 0.8 0.5 France 2013 1.5 -2.00 2000 4.50 0.48 0.7 0.9 0.1 Germany year Prim. balance 2011 Max. year Max. avg. 00 - 10 avg max min   Planned consolidation actual primary balance Historic primary balance Consolidating primary balance until 2020 in % of GDP Source: EU Commission, Raiffeisen RESEARCH
  • 54. Potential effects of Greek restructuring how our forecasts would be affected
    • Greece - comparison of alternative scenarios
    • Scenario A: our current base case scenario (still most likely outcome)
    • Scenario B: „Soft Restructuring“, assumption: forced maturity extension of short-term greek bonds maturing by 2013 for 5 years
    • How strong such a „soft restructuring“ harms financial markets and the economy depends on the degree of fear and liquidity crunch this triggers in the European banking system. For the repercussions of scenario B, we have therefore to distinguish two different potential outcomes:
    • Scenario B1: Maturity extension without massive liquidity squeeze in the european banking system
    • Scenario B2: Maturity extension with massive (Lehman-like) liquidity squeeze in the european banking system
    • Short-term effect medium-term effect
    • (1-3 months) (6-12 months)
    • Base case B1 B2 Base case B1 B2
    • current
    • Greece 10y government bond price 51 51 48 45 51 50 50
    • Ireland and Portugal 2y government bond price 88 90 75 65 88 80 65
    • German 10y government bond yield 3.1 3.3 2.9 2.3 3.6 3.4 2.6
    • ECB key rate 1.25 1.5 1.5 QE* 2 2 QE*
    • EUR/USD 1.41 1.45 1.37 1.17 1.30 1.30 1.10
    • EUR/CHF 1.24 1.30 1.2 1.1 1.34 1.3 1.24
    • Credit Spread Financials forecast (Senior) 129 120 170 300 100 140 200
    • Credit Spread Non-Financials forecast 110 120 140 280 95 110 175
    • DAX 7122 7500 7000 5600 7600 7300 6200
    • Euro Stoxx 50 2794 3100 2600 2000 3300 2800 2300
    *additional liquidity enhancing measures, e.g. new long-term ECB tender Source: Thomson Reuters, Raiffeisen RESEARCH
  • 55. Potential effects of Greek restructuring how our forecasts would be affected Source: Thomson Reuters, Raiffeisen RESEARCH Economic effects 2011 2012 Base case B1 B2 Base case B1 B2 GDP growth Greece -3.0 -3.0 -3.3 1.1 1.1 -1.5 GDP growth euro area 2.1 2.1 1.8 1.9 1.9 -0.5 GDP growth USA 2.7 2.7 2.4 3.0 3.0 1.0 GDP growth Poland 4.0 4.0 2.8 4.5 4.5 0
  • 56. UKRAINE Current Issues June 2011
    • The economy remains on stable recovery path amid reviving domestic demand
    • However, in the longer-run, the sustainability of the current growth model is in doubt given poor economic efficiency, stalemate of structural reforms, damaged public finances and unfavorable demographic outlook.
    • IMF programme is currently off-track as the Ukrainian authorities are dragging with pension reforms and tariff increases
    • Inflation took off recently driven by surging food and fuel prices, plus tariff hikes
    • Despite deteriorating trade balance, external position remains strong against the background of robust capital inflows. Consequently, hryvnia is trading stable versus USD
    • The budget is improving amid robust revenue performance and favorable financing conditions, albeit stretched Naftogas finances continue to put the pressure on the fiscal accounts
    Source: State Statistics Committee, Raiffeisen RESEARCH GDP dynamics -25% -20% -15% -10% -5% 0% 5% 10% Q1 07 Q2 07 Q3 07 Q4 07 Q1 08 Q2 08 Q3 08 Q4 08 Q1 09 Q2 09 Q3 09 Q4 09 Q1 10 Q2 10 Q3 10 Q4 10 Q1 11 GDP growth, yoy GDP growth, qoq, s.a.
  • 57. UKRAINE Key economic and financial market forecasts June 2011 - - - Fitch - Stable B2 Moody's - Stable B+ S&P Comment Outlook Current Ratings, l-t- FCY n/a n/a n/a n/a 10 year T-bond yield 4.9 8.1 4 5.6 3 month money market rate 7.75 7.75 7.75 7.75 Key interest rate Q1 12 Q4 11 Q3 11 Current 8 8 8 8 USD/LCY (avg) 10 11 11 11 EUR/LCY (avg) 73.2 79.4 85.2 90.7 Gross foreign debt (% of GDP) 140.0 130.0 117.3 103.3 Gross foreign debt (USD bn) 25.1 30.2 26.6 21.8 Official FX reserves (% of GDP) 3.7 4.0 4.2 4.1 Net foreign direct investment (% of GDP) -2.8 -2.4 -2.1 -1.5 Current account balance (% of GDP) 41.0 41.7 40.0 34.6 Public debt (% of GDP) -1.0 -2.0 -3.5 -7.5 General budget balance (% of GDP) 6.5 7.2 8.5 8.8 Unemployment rate (avg, %) 10.0 11.0 9.1 12.3 Consumer prices (eop, % yoy) 10.0 10.0 9.4 15.9 Consumer prices (avg, % yoy) 5.0 6.5 11.0 -21.9 Industrial output (% yoy) 8.1 8.0 14.8 -51.3 Gross fixed capital formation (real, % yoy) 5.2 5.5 7.0 -14.2 Household consumption (real, % yoy) 5.0 4.5 4.2 -14.8 Real GDP (% yoy) 2012f 2011e 2010 2009
  • 58.
    • Currently, inflationary pressure in CEE mostly driven by global price trends in energy and other raw materials (see chart)
    • Domestically (demand) driven inflation not an issue in most CEE countries (as shown by import volumes still well below pre-crisis levels), here CEE differs from other Emerging Markets
    • Current recovery in CEE (still) mostly export driven (as shown by export volumes and industrial production close to or at pre-crisis levels)
    CEE: suffering from global price trends Source: CPB, Raiffeisen RESEARCH Global price trends manufacturing, energy & other raw materials (2000=100) 50 100 150 200 250 300 350 400 450 500 Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 Manufactures Energy Other raw materials
  • 59. Imports volumes (seasonally adjusted, 2000=100) CEE: LOW DEMAND DRIVEN INFLATION PRESSURE Imports below pre-crisis, export-driven recovery Export volumes (seasonally adjusted, 2000=100) Source: CPB, Raiffeisen RESEARCH Source: CPB, Raiffeisen RESEARCH 50 100 150 200 250 300 Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 Asia CEE Latin America Africa & Mid East 50 75 100 125 150 175 200 225 250 275 300 325 Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 CEE Asia Latin America Africa & Mid East
  • 60. Industrial production (ex. construction, 2000=100) Exports at current prices (2000=100) CEE: CERTAIN HEDGE TO GLOBAL PRICE TRENDS Major energy/raw material exporters in CEE Source: CPB, Raiffeisen RESEARCH Source: CPB, Raiffeisen RESEARCH 75 100 125 150 175 200 225 Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 Advanced Economies Eurozone CEE EM 75 100 125 150 175 200 225 250 275 300 325 350 Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 Asia CEE Latin America Africa & Mid East
  • 61.
    • Inflation outlook CEE:
    • Inflation to remain in check, inflation to remain modest by historical standards
    • Some CE countries (with credible inflation targeter central banks) already in tightening mode despite modest inflationary pressure
    • Domestic inflationary pressure will remain weak in SEE
    • Some uptick in the CIS region, but currently economic recovery disappoints in Russia
    CEE: INFLATION OUTLOOK Inflation to remain in check Source: Raiffeisen RESEARCH Consumer price inflation (% yoy) 0.0 5.0 10.0 15.0 20.0 25.0 30.0 35.0 40.0 00 01 02 03 04 05 06 07 08 09 10 11e 12f CE, (avg.) SEE, (avg.) CIS, (avg.) CE, (eop.) SEE, (eop.) CIS, (eop.)
  • 62. CEE: INFLATION OUTLOOK Major risks in CIS and SEE countries Source: Raiffeisen RESEARCH Consumer price inflation
    • CPI levels clearly linked with CPI volatility (including risks stemming from global price trends)
    • CPI volatility largely driven by CPI weights of food and energy prices as well as the import propensity of such goods
    • Major inflation risks in CEE in the SEE region, certain vulnerability in some CIS and CE countries (mostly UA, partially RU, BY and HU)
    0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 16.0 AL PL RO HR TR SI HU SK CZ RU BG BY RS UA Avg. CPI (% yoy, 2005-2010) CPI volatility (stdv.)
  • 63. CEE: INFLATION OUTLOOK Major risks in CIS and SEE countries Source: National sources, Raiffeisen RESEARCH Source: World Bank, Raiffeisen RESEARCH Weights food & energy in CPI basket (%) Energy imports, net (% of energy use) 0 10 20 30 40 50 60 70 UA BA AL RS BG RO RU HR PL HU TR SK SI CZ -100 -80 -60 -40 -20 0 20 40 60 80 TR SK HU HR SI AL BG UA RS RO BA CZ PL RU
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