According to London’s financial analysts, the economies of Central and Eastern Europe show little signs of overheating despite the nearly three-year unprecedented growth in the third quarter, but if fiscal and monetary policy is not tightened in the near future, the risk of macroeconomic imbalances would.
One of the largest economics and finance analysts in London, Capital Economics, on Monday’s global study, said that its annual average growth rate in the Central and Eastern European region was 5.4 percent in the third quarter, Since 2008, the fastest.
Capital analysts at Capital Economics added: According to their own model calculations, aggregate annual comparative wage growth in central and eastern European economies accelerated to 7.7 per cent from the 5 per cent in the previous quarter.
According to the house, this wage growth rate is not compatible with inflation targets in most economies in the region, and core inflation, albeit low, is already on a steeply rising track.
As a consequence of wage growth and inflationary pressures, early economic signs of erosion of external competitiveness have emerged in the economies of the region. The most frequently used competitiveness indicators include the effective real exchange rate, ie the exchange rate with commercial weighting, adjusted by the inflation rate of the trading partners of the given economy.
London analysts at Capital Economics emphasize that the real real exchange rate has risen in all the economies of Central and Eastern Europe over the past year, especially in Poland and the Czech Republic.
Another measure of competitiveness erosion caused by wage and price increases is the labor cost per unit of product value. In Hungary, Romania and the Czech Republic, this indicator has risen by 5 to 10 percent over the past year, indicating that wages grow faster than productivity growth – is the Capital Economics study in the region.
London analysts say that this is “not, or at least not” the same kind of overheating as the region experienced directly before the 2008-2009 financial crisis. The pace of credit escalation is moderate, most of the placements nowadays are increasingly in local currency rather than in foreign currency, and the current account balance of the economies of the region is much healthier than before the crisis, and stock market pricing did not show any overestimation.
Yet, the version of the Taylor rule adopted by Capital Economics suggests that monetary policy is too loose in Hungary, the Czech Republic, Poland and Romania – emphasizes the firm’s study.
The basic version of the econometric deduction of the Taylor rule shows that the differences between the inflation target and the actual inflation rate and the rates of potential and actual economic growth are the size and direction of the nominal central bank interest rate.
According to analysts at Capital Economics, the main source of concern is that policy makers in these countries, at least for the time being, have no readiness to withdraw the revivalist position.
According to the house, this does not threaten growth in the next 6-12 months, but in 2-3 years’ time it is “a long shadow of the prospect of the region.” The current acceleration of growth is certainly a good news for the Central and Eastern European region, which has hit the global financial crisis harder than most other areas of the world economy, but nobody would have any reason to try to artificially maintain the growth rates this year, according to a study by Capital Economics London analysts.
According to other large London houses, however, there is no particular concern in Hungary due to the extremely mild monetary policy of the Hungarian National Bank (MNB).
Morgan Stanley Global Financial Services Analysts from emerging markets in London’s investment department have recently made an informed visit to Hungary, Poland and the Czech Republic. Their report on their talks was announced in London earlier this month: although most of their Budapest counterparts believe that the MNB’s monetary policy was “extremely mild”, but there was hardly any negotiating partner who would have been afraid of the overheating of the Hungarian economy or the ” and there was no concern that the forint may become vulnerable to low interest rates.
According to Morgan Stanley’s London report, even the most skeptical observers did not fear that the monetary base of the MNB could cause fundamental equilibrium problems in the Hungarian economy.
Source: MTI / Picture: 24.en /