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June 2011
PRIVATE WEALTH RAIFFEISEN FORUM 2011
Ukraine: View from Global
Pespectictive
Pavel MertlikCheif Economist
Raiffeisenbank a.s. (Czech Republic)member of Raiffeisen Bank International Group
Kiev14th June 2011
June 2011
Organization
Global Macroeconomic Outlook
Global Stock Markets
Large Non-European Emerging Markets
Oil Price
"The Greek Tragedy", Absence of Sustainable Growth Model 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
June 2011
LEADING INDICATORS AT THE TOPIs the economic recovery tipping?
Source: Thomson Reuters, Raiffeisen RESEARCH
ifo index
ISM index manufacturing76
82
88
94
100
106
112
2006 2007 2008 2009 2010 201130
36
42
48
54
60
66
June 2011
USA: LABOUR MARKET REMAINS WEAK SPOT of the recovery – but it is improving!
* Private nonfarm payrolls, monthly values, Index end of recession = 100Source: 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 101112131415161718192021222324
Mar.91
Nov.01Jun.09
ø of the 9 recessions after WW II
June 2011
ECONOMIC PROSPECTSGermany 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*20102009change in % yoy 2012*
June 2011
EUROZONE: Two speeded economic recovery continues
* ForecastSource: 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*2.02.1
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
June 2011
Inflationary pressures mainly due to higher oil prices – but core inflation also bottoming out
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
Source: Thomson Reuters, Raiffeisen RESEARCH
June 2011
EUR: Pricing power of firms is increasing only modestly
-1.6
-0.8
0.0
0.8
1.6
2.4
3.2
1997 1999 2001 2003 2005 2007 2009 201169.0
72.0
75.0
78.0
81.0
84.0
87.0Core rate (% yoy)
Capacity utilisation (r.h. scale)
Source: Thomson Reuters, Raiffeisen RESEARCH
June 2011
ECB DRAINS LIQUIDITYComposition of ECB lending to the banking sector
Am
ou
nt
ou
tsta
nd
ing
, EU
R b
ln.
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.110
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)
ECB financing volume before Lehman
bankruptcy
June 2011
RBI INFLATION MODELincreasing 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
June 2011
INTEREST RATE FORECATS:ECB continues with normalisation process
Source: Thomson Reuters, Raiffeisen RESEARCH
current Sep-11 Dec-11
Key rate 0 – 0.25Libor 3m 0.31Yield 10y 3.06
0.703.80
1.004.00
USA
Key rate 1.25Euribor 3m 1.33Yield 10y 2.97
1.752.003.60
2.002.203.80
Eurozone
0.750 – 0.25
June 2011
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
June 2011
EUR/CHFFranc 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
June 2011
STOCK MARKET INDICESDoes the recovery continue?
Source: Thomson Reuters, Raiffeisen RESEARCH
2003 2004 2005 2006 2007 2008 2009 201050
100
150
200
250
300
350
400
450ATX
DAX 30
DOW JONES INDUSTRIALS
50
100
150
200
250
300
350
400
450
June 2011
CURRENT BULL MARKETstill young in duration
1990-00
1949-56*1932-37*
1982-87
1974-80
Average52 months, 150 %
1942-46*
2002-07
since 200926 months 99 %
1966-68
1970-73 1987-90
1962-661957-61
0%
50%
100%
150%
200%
250%
300%
350%
400%
450%
0 20 40 60 80 100 120 140
Bull market duration (in months)
Ad
van
ce (
%)
S&P 500, Performance calculated on daily closing pricesexcept * based on monthly average price
Source: Robert Shiller data, Thomson Reuters, Raiffeisen RESEARCH
June 2011
STOCKS & ECONOMYgrowth supportive
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
120DAX % yoy
Ifo-Index (r.h.s.)
Source: Thomson Reuters, Raiffeisen RESEARCH
June 2011
Q1 EARNINGS SEASONimpressive
Source: Bloomberg, Raiffeisen RESEARCH
-60%
-40%
-20%
0%
20%
40%
60%
80%
Q2 2009Q3 2009Q4 2009Q1 2010Q2 2010Q3 2010Q4 2010Q1 2011Q2 2011
Consensus estimates ahead of the quarter
Reported earnings growth for the quarter
June 2011
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
June 2011
VALUATIONS*European stocks offer more „value“
* price-to-book ratio, broad datastream indicesSource: Thomson Reuters, Raiffeisen RESEARCH
92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 100.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
4.50
5.00
Eurozone
USA
June 2011
VALUATIONSattractive in relative terms
Source: Thomson Reuters, Raiffeisen RESEARCH
8889 9091 9293 94 959697 98 990001 02 0304 0506 0708 09101
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
June 2011
FACTORSto 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
June 2011
BIGGER PART OF THE BULL MARKET BEHIND USstill some upside potential
Source: Thomson Reuters, Raiffeisen RESEARCH
9000
9500
10000
10500
11000
11500
12000
12500
13000
13500
14000
Dec-09Mar-10Jun-10Aug-10Nov-10Feb-11May-11Aug-11Nov-11Feb-124000
4500
5000
5500
6000
6500
7000
7500
8000
8500
9000
DJIA
DAX (r.h. scale)
Forecast
June 2011
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
June 2011
PRO EMERGING MARKETS IEconomic 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**
June 2011
PRO EMERGING MARKETS IITotal 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
June 2011
BUT: Substantial inflation risks
Source: Thomson Reuters, Raiffeisen RESEARCH
-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
CPI in %, p.a.
June 2011
…AND INTEREST RATE HIKES around the EM globe
base rate current last change change
Latin AmericaBrazil SELIC overnight rate 12,00 20.04.2011 0,75Chile Discount rate 5,00 - - 0,50Colombia Repo rate 4,00 31.05.2011 0,50Mexico Repo rate 4,50 - - - -Peru Reference rate 4,25 11.05.2011 0,75
AsiaChina Base lending rate (1y) 6,31 06.04.2011 0,25Hong Kong Base rate 0,50 - - - -India Repo rate 7,25 03.05.2011 0,75Indonesia Reference rate 6,75 - - - -Malaysia Overnight policy rate 3,00 05.05.2011 0,25Philippines Reverse repo rate 4,50 05.05.2011 0,50Singapore 3m interbank 0,31 - - - -South Korea Base rate 3,00 10.03.2011 0,25Taiwan Discount rate 1,75 01.04.2011 0,12Thailand 1-day repo rate 3,00 01.06.2011 0,25
Africa and Middle EastEgypt Deposit rate 8,25 - - - -South Africa Repo rate 5,50 - - - -Israel Repo rate 3,25 26.05.2011 0,25Kuwait Discount rate 2,50 - - - -Saudi Arabia Reverse repo rate 0,25 - - - -
12.05.2011
Source: Thomson Reuters, Bloomberg
June 2011
EM MONETARY POLICY MORE RESTRICTIVE:China
China
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.)
China
6
8
10
12
14
16
18
20
22
Apr.05Apr.06Apr.07Apr.08Apr.09Apr.10Apr.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 RatioBig banks (%)
Base lending rate, 1Y, (%, r.h.s.)
Source: Thomson Reuters
June 2011
EM-CURRENCIES: Strong against the USD BUT weaker against the EUR
Asian currencies to EUR Latin American currencies to EUR
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
Source: Thomson Reuters
June 2011
EM STOCKS – outperformance?
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
Source: Thomson Reuters
June 2011
EM Bond Markets current yield level
Asian local bond yields Latin American local bond yields
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)
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
June 2011 32
OIL MARKETCrude oil & equities in lockstep
Source: Thomson Reuters, Raiffeisen RESEARCH
2008 2009 2010 201120
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)
June 2011 33
OIL MARKETBrent/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
US
D p
er
barr
el
Brent
WTI
June 2011 34
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
GasOil
Share of global oil production*Spare capacity is getting tight!
*31.12.2009Source: BP-Statistical review of world energy
June 2011 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 productionResidual spare capacity
million
barr
els
per
day
June 2011 36
OIL MARKET Emerging market demand still robust
Oil demand growth - China
Source: IEA, Raiffeisen RESEARCH
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011e
yoy g
row
th
June 2011 37
OIL MARKET Oil price the biggest risk itself
US gasoline demand*
* yoy, 4-week average Source: IEA, Raiffeisen RESEARCH
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
barr
els
per
day
2009
2010
5-year avg
2011
June 2011 38
OIL MARKET US crude stocks above average
US crude stocks
Source: IEA, Raiffeisen RESEARCH
300
310
320
330
340
350
360
370
380
Jan. Feb. Mar. Apr. May Jun. Jul. Aug. Sep. Oct. Nov. Dec.
million
barr
els
5-year average
2011
June 2011
OIL MARKET Non-OPEC production growth?
39
Non-OPEC supply: 2009-2015*
* Change in production vs 2008Source: IEA
-0.8
-0.4
0
0.4
0.8
1.2B
razi
l
Bio
fuels
Can
ad
a
Colo
mb
ia
Kaza
kh
sta
n
Ru
ssia
Aze
rbaijan
US
A
Mexic
o
Norw
ay
UK
million
barr
els
per
day
June 2011
OIL MARKET OPEC capacity growth takes a breather
40
OPEC crude oil production capacity
Source: IEA
33
34
35
36
37
38
2009 2010 2011f 2012f 2013f 2014f 2015f
million
barr
els
per
day
June 2011 41
OIL MARKETfundamentals 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
barr
rels
per
day
June 2011 Slide No. 42
OIL MARKETRisk premium expected to decrease…
Oil price forecasts
Source: Raiffeisen RESEARCH
40
50
60
70
80
90
100
110
120
2006 2007 2008 2009 2010 2011e 2012f 2013f
US
D p
er
barr
el
old forecast risk premium due to MENA crisis
June 2011
Risk factor EUR-debt crises
Yield government bonds 10y (in %)
Source: Thomson Reuters
Germany
Greece
Ireland
Austria0
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
June 2011
GREECE: AUSTERITY MEASURESAre 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
02006 2007 2008 2009 2010 2011 2012
0
20
40
60
80
100
120
140
160
June 2011
Greek budget historykeeps 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 2010first report to Eurostat (spring of the subsequent year)current status
Maastricht limit
June 2011
Contagion from Greek restructuring
Who owns Greece government bonds*
* estimatesSource: IWF, BIS, Raiffeisen RESEARCH
EUR bn. Relative share in %ECB 50 15EU 39 11IMF 15 4Greek banks* 45 13French banks* 20 6German banks* 26 8Other euro area banks 19 5Greek non-banks 50 15Other investors 81 24Total 344 100
June 2011
EUROZONE peripheryRedemption profile government bonds (EUR bln)
* between May and December 2011 redeemable bonds
Source: Bloomberg, EU Commission, Raiffeisen RESEARCH
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
June 2011
EUROZONE peripheryLatest 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
June 2011
EUROZONE peripheryPublic 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
June 2011
EURO ZONE – PUBLIC FINANCES 2011 Budget consolidation shows first impacts
Source: EU-Commission, Raiffeisen RESEARCH
Bu
dg
et
bala
nce 2011 (
% G
DP
)
US
Austria
Germany
Spain
BelgiumNetherlands
Finland
Ireland
Italy
FrancePortugal
Greece
Euro Zone
Sweden
Denmark
UK
-14
-12
-10
-8
-6
-4
-2
0
20 40 60 80 100 120 140 160 180Public debt 2011 (% GDP)
Maastricht Criteria
June 2011
BUDGET CONSOLIDATIONEvaluation of austerity measures
How to re-establish confidence given our economic framework?
AustriaBelgiumIrelandSpainItalyPortugalGreeceGermanyFranceNetherlandsFinland
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 …
June 2011
ASSUMPTIONS
* Long term average ESM rate ** in % of GDP
Source: EU Commission, Thomson Reuters, Raiffeisen RESEARCH
Ireland
2.1 3.94.04.03.92.01.3107119.0Italy
1.2 4.14.74.14.72.01.55460.1Spain
5.5 4.76.5*4.721.42.01.1129142.8Greece
2.3 4.36.5*4.311.42.02.58796.2
2.9 4.16.5*4.111.72.01.68493.0Portugal
0.1 2.62.62.62.62.01.54848.4Finland
0.4 2.93.93.92.92.02.05662.7Netherlands
1.7 3.64.04.03.62.01.28796.8Belgium
1.1 2.84.34.32.82.01.56572.3Austria
0.8 2.93.43.42.92.01.47481.7France
0.7 2.63.73.72.62.01.67583.2Germany
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**
June 2011
EVALUATIONComparison to history, current & plan
20133.92.1019976.601.992.12.12.0Italy
2013-0.3-3.4020063.700.151.21.31.0Spain
20133.1-1.8019984.30-1.125.56.23.7Greece
2013-1.6-6.5020006.80-0.412.33.41.2Ireland
2013-0,4-1.1019923.60-1.572.93.61.4Portugal
20130.8-1.7020009.604.53-0.4-0.4-0.4Finland
20130.8-2.8020005.601.120.40.80.2Netherlands
20131.9-1.2020016.803.351.71.81.4Belgium
20130.1-1.7020013.401.101.11.40.4Austria
2013-0.1-4.5020011.50-0.960.80.80.5France
20131.5-2.0020004.500.480.70.90.1Germany
yearPrim. balance2011
Max. yearMax.avg. 00 - 10avgmaxmin
Planned consolidation
actual primary balance
Historic primary balanceConsolidating primary
balance until 2020in % of
GDP
Source: EU Commission, Raiffeisen RESEARCH
June 2011
Potential effects of Greek restructuringhow our forecasts would be affected
*additional liquidity enhancing measures, e.g. new long-term ECB tenderSource: Thomson Reuters, Raiffeisen RESEARCH
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 yearsHow 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 B2current
Greece 10y government bond price 51 51 48 45 51 50 50Ireland and Portugal 2y government bond price 88 90 75 65 88 80 65German 10y government bond yield 3.1 3.3 2.9 2.3 3.6 3.4 2.6ECB 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 1.10EUR/CHF 1.24 1.30 1.2 1.1 1.34 1.3 1.24Credit Spread Financials forecast (Senior) 129 120 170 300 100 140 200Credit Spread Non-Financials forecast 110 120 140 280 95 110 175DAX 7122 7500 7000 5600 7600 7300 6200Euro Stoxx 50 2794 3100 2600 2000 3300 2800 2300
June 2011
Potential effects of Greek restructuringhow our forecasts would be affected
Source: Thomson Reuters, Raiffeisen RESEARCH
Economic effects
2011 2012Base 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
June 2011June 2011 56
UKRAINECurrent Issues
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 0
7Q
2 0
7Q
3 0
7Q
4 0
7Q
1 0
8Q
2 0
8Q
3 0
8Q
4 0
8Q
1 0
9Q
2 0
9Q
3 0
9Q
4 0
9Q
1 1
0Q
2 1
0Q
3 1
0Q
4 1
0Q
1 1
1
GDP growth, yoy
GDP growth, qoq, s.a.
June 2011June 2011
UKRAINEKey economic and financial market forecasts
---Fitch
-StableB2Moody's-StableB+S&P
CommentOutlookCurrentRatings, l-t- FCY
n/an/an/an/a10 year T-bond yield
4.98.145.63 month money market rate
7.757.757.757.75Key interest rate
Q1 12Q4 11Q3 11Current
8888USD/LCY (avg)10111111EUR/LCY (avg)
73.279.485.290.7Gross foreign debt (% of GDP)140.0130.0117.3103.3Gross foreign debt (USD bn)25.130.226.621.8Official FX reserves (% of GDP)3.74.04.24.1Net foreign direct investment (% of GDP)-2.8-2.4-2.1-1.5Current account balance (% of GDP)41.041.740.034.6Public debt (% of GDP)-1.0-2.0-3.5-7.5General budget balance (% of GDP)6.57.28.58.8Unemployment rate (avg, %)
10.011.09.112.3Consumer prices (eop, % yoy)10.010.09.415.9Consumer prices (avg, % yoy)5.06.511.0-21.9Industrial output (% yoy)8.18.014.8-51.3Gross fixed capital formation (real, % yoy)5.25.57.0-14.2Household consumption (real, % yoy)5.04.54.2-14.8Real GDP (% yoy)
2012f2011e20102009
June 2011
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
June 2011
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-00Jan-02Jan-04Jan-06Jan-08Jan-10
CEE
Asia
Latin America
Africa & Mid East
June 2011
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
CEELatin America
Africa & Mid East
June 2011
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.)
June 2011
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.)
June 2011
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
June 2011
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