V4 Currencies: SKK Gone Strong, PLN and HUF Down

This is a graph depicting the purchasing power of Visegrád Four currencies vis-à-vis Euro since November 2005, when Slovak Koruna entered the ERM II system. The figure shows that the Slovak currency has been fixed to Euro at the time when all V4 currencies registered their several-year highs (summer 2008). After criris-related depreciation of CZK, PLN and HUF, this strong conversion rate made Slovakia relatively more expensive to its neighbors, which hampers exports but tames inflation. More information can be found in TREND Analyses' macropresentation.

1Q 2009: Economies Shrank Considerably

Country 1Q real y/y GDP growth NSA / SA
Czech Republic -3.2% / -3.4%
Hungary -6.4% / -4.7%
Poland n.a.* / n.a.* (seen at 1.0-1.3% by MinFin, 1.0% by Bloomberg)
Slovakia -5.4% / -6.0%

NSA - non-seasonally adjusted, SA - seasonally adjusted
* - will be published on May 29

Falling By How Much?

Revisions of macroeconomic forecasts bring worse and worse predictions for the V4 economies. The latest prediction of the National Bank of Slovakia expects local GDP to shrink by 2.4%. Last year, Slovak economy expanded by 6.4%.
Hungarian authorities already calculate with a recession of 5.5-6.0% in this most-hit Central-European country (majority of analysts expected 4-5% decline).
An older (February) forecast of the Czech National Bank counts with an economic decline of only 0.3% in the Czech Republic. IMF expects -1.3%.
By the end of March, Polish central bank expected a 1.1% growth for Poland, which would make the country the only economy in the EU to grow. Similar estimate was released by The Economist Intelligence Unit (+0.9%).
A good portrayal of the current state in the local automotive sector, one of the leading and most-hit industries, can be found at businessnewseurope.

The Economist's Portrayal of CEE

(from The Economist print edition, February 12, 2009)

"A picture worth 163 words

SIR – Given your newspaper’s determination to accompany any article on social or political affairs in eastern Europe with a photograph of the apparently ubiquitous old lady with a shawl wrapped over her head, I was delighted to find that your recent piece on the gas crisis in the region (“Gasping for gas”, January 17th) carried a picture representative of another important demographic group: the dentally challenged villager. My excitement was short-lived, however, as just a week later it was back to the well-wrapped old lady (“To the barricades”, January 24th). One gets the impression from your coverage of elections that every polling station east of the Danube is populated solely by such characters.

To avoid creating any misleading stereotypes, may I suggest that you widen your range of imagery to better represent east Europeans. Roma using horse-drawn carts on main roads, elderly veterans in Soviet-style uniforms and furry hats and vodka-soaked vagrants would broaden the picture.

Daniel Tilles
Cracow, Poland"

Average Wages under Exchange Rate Pressure

Average monthly wages in Visegrád Four (V4) countries expressed in terms of Euro values suffered from exchange rate devaluation during the last quarter of 2008. Yet, only Polish wages decreased in Euro-terms compared to the previous quarter. Slovakia, a fresh member of the Eurozone, did not experience an exchange rate depreciation thanks to its set conversion rate. The country's average Euro wage has doubled during the last four years. (More information in updated TREND Analyses' macropresentation.)

Average Wages in Visegrád Four Countries

Note: Bloomberg served as the source of data.

The chart above graphs the development of average monthly wages in V4 countries. Inter-country comparisons are difficult however, mainly due to various definitions of gross wage across the region. Comparing total labor costs or net wages instead might make more sense. Due to higher employer contributions in Slovakia, for exmple, the average gross wage is lower than that in Hungary. When comparing net wages, however, Hungarian salaries have been lower than Slovak ones for the last four quarters.