Has central Europe done enough to woo investors?

January 25, 2013

By Dasha Afanasieva

Central European markets have studied hard to impress investors, says Angela Merkel, but have they passed the test?

In Davos on Thursday, the German chancellor urged business leaders to head for the region:

I’m saying this to investors who are pondering investment in Europe: Central and Eastern Europe has done, almost flying below the radar, a lot of reforms… Look at the investment climate in Europe; it has changed for the better.

But the region did not look so rosy to investors this week.

The Polish stock index was down more than 1.2 percent. Data out on Thursday showing the biggest drop in retail sales in almost eight years prompted more calls to cut the interest rate again, and sent the zloty lower on the day.

Hungarian shopaholics too stayed on the wagon at the end of last year.  Retail sales there fell 4.1 percent in November year-on-year, according to fresh data which pushed the forint to a new seven-month low as investors expected further rate cuts.  Hungarian markets also have to contend with uncertainty over central bank policy in anticipation of a leadership change at its central bank in March.

Meanwhile, Romania asked the IMF for an extension of its aid deal.

For Poland, Hungary, Romania and the Czech Republic, the last recorded quarterly growth was flat, at best.
All four saw their unemployment rate rise in December, with Central Europe’s biggest economy, Poland, registered a worse than expected jobless rate of 13.4 percent.

Luis Costa, head of CEEMEA FX and fixed income strategy at Citi said:

If you look into central Europe you see a lot of weakness. Polish numbers – the industrial output, the retail sales numbers are pretty bad and in Hungary we again had a batch of horrible numbers so with the exceptions of a few credits such as Turkey the picture is still very depressed.

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