CEE region

Economic growth in the countries of Central and Eastern Europe is essentially governed by three trends:

The first is the positive trends experienced in Vienna Insurance Group’s major core markets, such as the Czech Republic, Poland, Slovakia and Romania. This is partly due to the slight upswing in the Eurozone, which is an important export region for CEE countries. In some countries, the successful national economic policies implemented in previous years are another factor that is starting to bear fruit due to the stabilising effect on national economic systems and resulting growth rates of between 2.0% and 3.5%. With the exception of Hungary (-1.2 percentage points in 2015 and -0.3 percentage points in 2016), these growth rates are expected to increase again slightly in the next two years.

The second trend is shown by the stagnation in western Balkan countries. The situation has already improved compared to 2014, as a long-term recession lasting several quarters or half-year periods is not being predicted for any of the countries. The growth rate forecast is slightly above 0% for Croatia, and slightly below 0% for Serbia. Bosnia-Herzegovina, Albania, Slovenia and Montenegro are expected to grow at rates of 1.6% to 2.3%. Macedonia, however, is a role model for the region and is expected to continue growing at a rate of 3.5%.

The third major trend in the CEE region is the economic losses caused by the Russia-Ukraine conflict that are being suffered by all of the countries involved. The main burden is being felt by the two parties to the conflict themselves, due to mutual economic sanctions. The Baltic countries, however, are also being affected by Russia’s weakness. And economic losses are also being indirectly suffered by the countries of the EU, which have lost Russia as a major sales market.

Aside from these three trends, it is also noteworthy that Turkey is benefiting strongly from the low price of oil as a result of its large current account deficit.

The development which is the most relevant overall, and therefore of great importance for the future, is the upswing in VIG's core CEE markets in 2014. If the Eurozone remains stable, this could also benefit the peripheral CEE countries.

The great fragility of the Eurozone consolidation and falling emerging market valuations on international financial markets are less positive factors for the CEE region. Although this primarily concerns Brazil and Russia, one nevertheless has to consider that investment strategies could also have a negative effect on the CEE region.

At the beginning of 2015, the Swiss National Bank abandoned the exchange rate floor of EUR 1.20 for the franc, thereby causing some uncertainty in financial markets. This has a negative effect on the CEE region, as a large number of franc loans were issued there that will now be significantly more expensive to repay.

With respect to the Eurozone, the unstable cooperation between the new Greek government and the EU, or Troika, constitutes a risk for the entire European region, particularly since Germany is no longer categorically opposed to a reduction in the size of the Eurozone.

In addition, it remains to be seen how strong and sustained an effect the bond buying programme approved by the ECB in the middle of January 2015 has on the current low level of interest rates. The programme's volume of EUR 1.14 trillion is higher than expected by most market participants, but reactions will depend on a number of factors, including how the volume is divided between corporate and government bonds, and whether markets view the rule that government bond purchases are to be made by national central banks as a clever measure encouraging independent responsibility or as a sign of a lack of political cohesion in the Eurozone.