Central and Eastern Europe (CEE) is poised for significant economic updates as several countries prepare to release key financial indicators. Slovakia too will soon release its all-important unemployment rate for the month of August, which should be extremely low. Coincidentally, Slovenia is about to announce its Producer Price Index (PPI) for July. Moreover, Croatia will be releasing wage growth data for July and the unemployment rate for August. These announcements have surprised many, especially given the backdrop of some dramatic swings in bond yields and household debt levels throughout the region.
The current economic landscape in CEE is shifting as countries recession while others have begun to turn the corner on decline. The yield spread between Hungarian and Polish 10-year government bonds is closing. It’s now at 135 basis points, lower than 170 basis points just a week ago, illustrating how fast the financial landscape has changed. Romania and Hungary have both benefited from the windfalls of falling long-end yields. These yields are down 20 to 30 basis points from where they were last week.
Debt Levels Across CEE Countries
The real disparity in the region comes in the form of household debt levels. Romania’s household debt is at 17.8% of GDP, with Hungary somewhat higher at 20.6% of GDP. In the context of Slovakia’s household debt levels being at worrying levels too, reaching just over half of those in Romania and Hungary. That large and problematic gap is a double-edged sword which poses a serious challenge and offers a rare opportunity for Slovakia. Most recently, household indebtedness has jumped from 26% to above 45% of GDP.
Over the last 15 years, most CEE countries have witnessed a decline in private sector indebtedness relative to GDP, with Slovakia being a notable exception. Slovakia’s recent consumer borrowing trends are cause for concern considering their potential impact on economic stability and consumer confidence. Croatia remains the laggard of the region, as it has the highest level of overall private sector indebtedness. The climb is nearing a worrisome 170% of GDP.
Upcoming Financial Reports and Ratings
States in Central and Eastern Europe are preparing to defend their economic measurements. At the same time, Moody’s Investors Service is expected to announce its own re-evaluation of Poland’s credit rating. It remains to be seen what this announcement’s effects will be on investor confidence and market stability in the region.
In Hungary, the national debt agency has re-opened its 10-year bond maturing in October 2035. They earned a terrific average yield of 6.84%. This yield is the lowest ever for this bond since its opening. It points to a much needed change in investor sentiment in Hungary’s capital markets.
Slovenia’s next PPI release is one of the other key points that economic watchers will be looking to. This metric will be pivotal in examining inflationary trends and the cost pressures businesses across the country are currently facing. Slovenia is now in the midst of realizing that economic recovery from the pandemic. This data provides a deep look into the health of our country’s manufacturing sector.
Currency Fluctuations and Market Reactions
The Polish zloty just had a small correction. The currency weakened by around 0.2% versus the euro. Currency markets are perhaps the best barometer of regional economic trends and investor sentiment. As each country rolls out more positive employment statistics and financial indicators come into play, currency analysts will be carefully tracking how these trends affect currency valuations.
Slovakia’s release on the unemployment rate will be in particularly focus. It could be a sign of how strong the labor market really is in the face of increasing household debt burdens. The correlation between unemployment rates and consumer spending remains a critical area of focus for economists evaluating Slovakia’s economic outlook.