CEE / MIDDLE EAST / NORTH AFRICA THIS WEEK January 21, 2011 POLAND 2 CZECH REPUBLIC 12 HUNGARY 20 SLOVAKIA 25 TURKEY 31 BULGARIA 40 ROMANIA 45 CROATIA 49 SERBIA 54 BOSNIA & HERZEGOVINA 59 ALBANIA 64 MIDDLE EAST & N. AFRICA 67 Written by IntelliNews. The report is based on sources which we believe to be reliable, but no warranty, either express or implied, is provided in relation to the accuracy or completeness of the information. The views expressed are our best judgement as of the date of issue and are subject to change without notice. Opinions are not necessarily those of Internet Securities Inc., Euromoney Institutional Investor PLC or its affiliates. Internet Securities Inc. and Euromoney Institutional Investor PLC take no responsibility for decisions made on the basis of these opinions. Any redistribution of this information is strictly prohibited. Copyright © 1999-2011 Internet Securities, Inc., all rights reserved. A Euromoney Institutional Investor company. Copyright © 1998-2011 Sofia, all rights reserved. COPYING PROHIBITED. COPYRIGHT 1999-2011 INTERNET SECURITIES, INC., ALL RIGHTS RESERVED POLAND MACROECONOMIC REVIEW Eurostat: Poland's HICP inflation The Harmonised Index of Consumer Prices (HICP) in Poland amounted to 0.3% m/m in accelerates to 2.9% y/y in December December, 2010 and was 2.9% in annual terms vs. 2.6% y/y a month earlier, the EU's statistical office Eurostat has said. In line with Eurostat's estimations, the average HICP inflation for the whole 27 EU amounted to 2.6% y/y in December (vs. 2.3% in November). In the euro-zone, the inflation was 2.2% y/y vs. 1.9% a month earlier. The lowest annual HICP figures were posted by: Latvia (-1.2%), Slovakia (0.7%), and Holland (0.9%). The highest figures were noted by: Romania (6.1%), Hungary and Greece (4.7% each). November CPI inflation (as measured by the Central Statistical Office) rose by 0.4% m/m, while in annual terms, it amounted to 3.1%. In November, the annual inflation amounted to 2.7% y/y. ISB FinMin pays EUR 382.3mn of foreign The finance ministry has announced that as part of its foreign debt servicing operations, it debt in December has paid EUR 310.9mn of the principal and EUR 71.4mn in interest payments of the state treasury's foreign debt in December. As of the end of that month, total foreign currency funds that the ministry had at disposal were equivalent of EUR 1,633.7mn (PLN 6,470.1mn), the ministry said. ISB World Bank upholds Poland's 2011 The World Bank has upheld its forecast of Poland's GDP forecast at 4.1% for 2011, the GDP growth forecasts at 4.1% organization said in its "Global Economic Prospects 2011" report, presented in Warsaw. In 2012, the Polish economy will likely expand by 4.5%, according to the World Bank. In November, the World Bank raised its forecast for Poland's GDP growth to 3.5% for 2010 from 3.0% expected in July and to 4.1% for 2011 from 3.7%, respectively. In the current report, the organisation expects Poland's private consumption to rise by 3.8% in 2011 and by the same ratio in 2012, while government consumption - by 1.6% and 2.6%, respectively. Fixed investment is projected to increase by 7.6% and 10.8, respectively. In early January, finance minister Jacek Rostowski said that Poland's economic growth exceeded 3.7% in 2010 (vs. 1.7% in 2009) and was likely to accelerate further this year, if the euro-zone did not witness a major crisis. ISB RPP hikes interest rates, as expected, The Monetary Policy Council (RPP) has raised interest rates by 25bps across the board in fear of CPI surge in mid-term (to 3.75% in the case of the key market intervention rate), as expected, so as to curb the risk of inflation remaining above the inflation target (2.5%) in the medium term, the NBP said in a communiqué after the RPP's sitting on Wednesday. The Council is not, however, anxious about economic growth as it expects Q4/2010 GDP rise to be close to the Q3 level. The Council noted that in December, 2010, the annual CPI inflation rose to 3.1%, remaining above the NBP's inflation target of 2.5%. The inflation increase was primarily connected with a strong rise in fuel prices driven by growing prices of energy commodities in the global markets. According to the Council, the acceleration of economic growth in Poland supporting the improvement in the labour market may lead to a gradual rise in wage and inflationary pressure in the medium term. At the same time, a strong rise in commodity prices in the global markets - amid economic recovery - creates a risk that heightened inflation expectations persist. Eight out of 12 bank economists surveyed by the ISB newswires deemed that the monetary authorities would likely start the tightening cycle with a 25bps hike this month. Previously, the key market intervention has not been changed since June, 2009. ISB IntelliNews comment In the face of the recently started acceleration of consumer inflation, the interest rate hike came as no surprise - even though merely a few weeks ago analysts were unanimous in expecting the tightening cycle's beginning only in March. Indeed, they now do not rule out another 25bps hike during the next rate-setting sitting in early March, especially as this meeting's press release is widely seen as a hawkish one. We share the view expressed by most analysts that the whole 2011 would likely see interest rate rises of 75-100bps. tom COPYING PROHIBITED. COPYRIGHT 1999-2011 INTERNET SECURITIES, INC., ALL RIGHTS RESERVED Industrial output up by 11.5% y/y in Industrial output fell by 4.1% m/m in December vs. the last month, while in annual terms, it December, slightly below expectations was up by 11.5%, compared to an 10.0% (revised) y/y rise in November, the Central Statistical Office (GUS) announced in a communiqué on Thursday. In Jan-Dec, it grew by 9.8%. Having eliminated the influence of seasonal factors, sold production of industry reached the level higher by 11.5% than in the corresponding month of the previous year and higher by 0.6% than in November, 2010, the release reads. Building and assembly production surged in December by 38.8% m/m and grew by 12.3% in annual terms. In November, its rise amounted to 14.2% y/y, while in Jan-Dec, 2010 - 3.5%. As compared to December 2009, an increase in sold production was reported in 26 (out of 34) industry divisions; the highest rises were reported in: manufacture of computer, electronic and optical products - by 30,5%, manufacture of metal products - by 27,0%, manufacture of electrical equipment - by 23,3%, the stats office also reported. Ten economists surveyed by the news agency ISB had expected industrial output to rise by 12.9% y/y in December, with forecasts between 9.4% and 15.1%. ISB Money supply M3 rises by 8.6% y/y to Money supply was PLN 782.25bn at the end of December, which means a rise of 2.5% PLN 782.25bn at end-December m/m and of 8.6% annually, the National Bank of Poland (NBP) has announced. At the end of November, the M3 noted a rise of 10.7% y/y. Net foreign assets dropped by 2.8% m/m to PLN 98.26bn in December, but were up by 43.4% in annual terms. Calculated in the euro, they amounted to EUR 24.81bn, with no changes m/m and a surge by 48.8% y/y. ISB FinMin: Public debt at 53.5% of GDP The public sector's debt amounted to around 53.5% of GDP in 2010, which means that in 2010, seen broadly unchanged in the ratio managed to stay below the 55% safety threshold, deputy finance minister 2011 Dominik Radziwilll has announced. He expects the ratio to remain broadly unchanged this year, while it should start to decline in subsequent years. In line with the 2011-2014 strategy of the public sector's debt management, the debt of the public sector (according to the Polish methodology) was to amount to PLN 750.8bn, or 53.2% of GDP, in 2010. Hence, it would not exceed the 55% threshold of the debt-to-GDP ratio this year, nor - as government representatives often stress - will it rise above this limit in 2011-2014. tom Enterprise wages up by 5.4% y/y, Average wages in the corporate sector rose by 9.1% m/m in December, 2010, and were employment by 2.4% y/y in December up by 5.4% in annual terms, amounting to PLN 3847.91, the Central Statistical Office (GUS) has announced. Average employment in the enterprise sector did not change vs. the previous month, whereas year-on-year, it increased by 2.4% and amounted to 5379.4 thousand persons, GUS reported. Ten economists surveyed by the ISB newswires had expected wages growth of 3.7% y/y on the average, with expectations in the range of 2.9-4.1%. The average expectation about the rise of the employment was 2.4% (with forecasts of 2.3-2.5%). ISB PPI rises by 6.1% y/y in December, Poland's Producer Price Index (PPI) rose by 1.1% on the month in December, while in exceeding expectations annual terms, they went up by 6.1% y/y, the Central Statistical Office (GUS) has announced.