23/1/16: Poland's Sovereign Risk Troubles

With what appears to be a political-motivated downgrade by the S&P on January, from A to BBB+, with steady outlook, Poland’s sovereign and macro risks have been pushed to the top of news flow. Meanwhile, Moody’s rates Poland A2 (stable) and Fitch A. However, as noted by Euromoney country risk recent assessment, the sovereign risks turmoil that accelerated over the last few weeks has been building up for some time now.

Euromoney Country Risk (ECR) survey shows that by the end of 2015, Poland’s political risk score dropped to 20.06, “the lowest it has been since ECR launched an updated methodology in 2011”. More interestingly, “Poland’s political risk score has been declining – indicating increased risk – since 2011.”

Worse, per ECR: “the drop in Poland’s political score from 20.17 in September to 20.06 in December combined with a fall in its economic risk score from 19.38 to 19.27 over the same period, contributing to a decline in its overall score to 65.62 from 66.93. Poland, which enjoyed a ranking as the 29th safest country in the world in September, dropped four spots in rankings since the yearend survey.

Here is ECR’s summary of scores for Poland, including some recent moves:

It is interesting to see Poland significantly underperforming Slovakia:

Overall, given that both Slovakia and Hungary have, over recent years, adopted a series of reforms that severely undercut effectiveness of institutional checks and balances over the power of the executive, the reaction of ratings agencies and European authorities to Poland following the same route suggests growing concern and nervousness in Europe over all and any national experimentation with populist and/or non-conformist (to EU 'standards') policies.

Not being a fan of the current Polish leadership, I find myself in Poland's corner: in a democratic setting, it is people, not Eurocrats, who should decide on their future institutions.

15/12/2014: BlackRock Institute Survey: EMEA, December 2014

BlackRock Investment Institute released the latest Economic Cycle Survey results for EMEA:

"With caveat on the depth of country-level responses, which can differ widely, this month’s EMEA Economic Cycle Survey presented a mixed outlook for the region. The consensus of respondents describe Russia, Croatia and the Ukraine in a recessionary state, the outlook changes to expansion for Croatia over next two quarters." In previous survey, the same three countries were described as likely to remain recessionary.

"At the 12 month horizon, the consensus expecting all EMEA countries to strengthen or remain the same with the exception of Russia and the Ukraine. Globally, respondents remain positive on the global growth cycle with a net 58% of 43 respondents expecting a strengthening world economy over the next 12 months – an 28% increase from the net 30% figure last month. The consensus of economists project mid-cycle expansion over the next 6 months for the global economy."

Note: Red dot represents Czech Republic, Kazakhstan, Romania, Israel, Poland, Slovenia and Slovakia

Previous report was covered here: http://trueeconomics.blogspot.ie/2014/10/23102014-blackrock-institute-survey.html

Note: these views reflect opinions of survey respondents, not that of the BlackRock Investment Institute. Also note: cover of countries is relatively uneven, with some countries being assessed by a relatively small number of experts.

29/10/2014: ABN AMRO on Emerging Europe's Economic Woes

ABN AMRO gloomy outlook for Emerging Europe region came out yesterday. Here are some highlights as related to Russian economy:

Over the past months, emerging Europe has increasingly faced headwinds.

Two core factors selected by ABN AMRO for these: Russian economy weaknesses and "weaker-than-expected performance of the eurozone, emerging Europe’s main trading  partner". In particular, "this can for instance be seen in Poland, where exports to the EU have slowed noticeably".

"All in all, according to our emerging Europe GDP tracker, annual growth in the region  fell to 1.1% yoy in Q3, down from 1.3% in Q2, keeping it on a downward path. Within the region, despite its structural outperformance over the past years, the Polish economy seems to be  slowing the most, while growth in the Czech Republic and in Hungary seems to be a bit more resilient."

"Looking further out, though risks remain tilted to the downside, growth should pick up next year. This reflects that we think that somewhere down the road, both Russia and Ukraine should recognise that some form of a diplomatic solution is needed. Alternatively, the conflict could evolve to a ‘frozen conflict’ with fewer economic consequences than currently is the case."

ABN AMRO sees this set of factors giving "room to a slight rebound in Russian GDP growth, though the slide in oil prices poses yet another headwind."

Here's their more detailed analysis for Russia:

And worse for Ukraine:

23/10/2014: BlackRock Institute Survey: EMEA, October 2014

BlackRock Investment Institute released the latest Economic Cycle Survey results for EMEA:

"The consensus of respondents describe Russia, Croatia, Egypt and the Ukraine in a recessionary state, with an even split of economists gauging Hungary and Turkey to be in a recessionary or contraction phase. Over the next two quarters, the consensus shifts toward expansion for Egypt and Turkey"

Red dot represents Czech Republic, Kazakhstan, Israel, Poland, Slovenia and Slovakia

"At the 12 month horizon, the consensus expecting all EMEA countries to strengthen or remain the same with the exception of Russia and the Ukraine."

Global: "respondents remain positive on the global growth cycle with a net 43% of 37 respondents expecting a strengthening world economy over the next 12 months – an 7% decrease from the net 50% figure last month. The consensus of economists project mid-cycle expansion over the next 6 months for the global economy"

Previous month results are here: http://trueeconomics.blogspot.ie/2014/10/6102014-blackrock-institute-survey-emea.html


Note: these views reflect opinions of survey respondents, not that of the BlackRock Investment Institute. Also note: cover of countries is relatively uneven, with some countries being assessed by a relatively small number of experts.

6/10/2014: BlackRock Institute Survey: EMEA, September 2014

BlackRock Investment Institute released the latest Economic Cycle Survey results for North America and Western Europe (covered here: http://trueeconomics.blogspot.ie/2014/10/6102014-blackrock-institute-survey-n.html). Here are the survey results for EMEA:

"The consensus of respondents describe South Africa, Croatia, Slovenia, Russia and the Ukraine in a recessionary state, with an even split of economists gauging Romania to be in a recessionary or contraction phase. Over the next two quarters, the consensus shifts toward expansion for Russia and South Africa. At the 12 month horizon, the consensus expecting all EMEA countries to strengthen or remain the same with the exception of Turkey, Slovenia, Hungary and the Ukraine."

Global: "respondents remain positive on the global growth cycle with a net 50% of 36 respondents expecting a strengthening world economy over the next 12 months – an 9% decrease from the net 59% figure last month. [There was also a net decrease from 85% two months ago]. The consensus of economists project mid-cycle expansion over the next 6 months for the global economy."


Two charts to illustrate:

Previous month results are here: http://trueeconomics.blogspot.ie/2014/08/2382014-blackrock-institute-survey-emea.html

Note: these views reflect opinions of survey respondents, not that of the BlackRock Investment Institute. Also note: cover of countries is relatively uneven, with some countries being assessed by a relatively small number of experts.

23/8/2014: BlackRock Institute Survey: EMEA, August 2014

BlackRock Investment Institute released the latest Economic Cycle Survey results for North America and Western Europe (covered here: http://trueeconomics.blogspot.ie/2014/08/2382014-blackrock-institute-survey-n.html). Here are the survey results for EMEA:

"…this month’s EMEA Economic Cycle Survey presented a mixed outlook for the region. The consensus of respondents describe Croatia and the Ukraine in a recessionary state, with an even split of economists gauging Russia, Hungary and Turkey to be in a recessionary or contraction phase."

6 months out: "Over the next two quarters, the consensus shifts toward expansion for Russia and Hungary and an even split between expansion or recession for Turkey."

12 month out: "At the 12 month horizon, the consensus expecting all EMEA countries to strengthen or remain the same with the exception of Russia, Hungary, Turkey and the Ukraine."

Global: "Globally, respondents remain positive on the global growth cycle with a net 59% of 32 respondents expecting a strengthening world economy over the next 12 months – an 26% decrease from the net 85% figure last month. The consensus of economists project mid-cycle expansion over the next 6 months for the global economy."

Two charts to illustrate:

Note: Red dot represents Czech Republic, Kazakhstan, Romania, Israel, Egypt, Poland, Slovenia and Slovakia.

Previous month results are here: http://trueeconomics.blogspot.ie/2014/07/1172014-blackrock-institute-survey-emea.html

Note: these views reflect opinions of survey respondents, not that of the BlackRock Investment Institute. Also note: cover of countries is relatively uneven, with some countries being assessed by a relatively small number of experts.

16/7/2014: BlackRock Institute Survey: N. America & W. Europe, July 2014

In an earlier post I covered EMEA results from the BlackRock Investment Institute latest Economic Cycle Survey. Here, a quick snapshot of results for North America and Western Europe.

"This month’s North America and Western Europe Economic Cycle Survey presented a positive outlook on global growth, with a net of 81% of 97 economists expecting the world economy will get stronger over the next year, compared to net 67% figure in last month’s report."

"The consensus of economists project mid-cycle expansion over the next 6 months for the global economy."

"Eurozone is described to be in an expansionary phase of the cycle and expected to remain so over the next 2 quarters. Within the bloc, most respondents described Greece and France to be in a recessionary state, with the even split between contraction or recession for Belgium. Over the next 6 months, the consensus shifts toward expansion for Greece and France. Over the Atlantic, the consensus view is firmly that North America as a whole is in mid-cycle expansion and is to remain so over the next 6 months."

"At the 12 month horizon, the positive theme continued with the consensus expecting all economies spanned by the survey to strengthen or stay the same with the exception of Finland which is expected to stay the same."

See June data for comparatives here: http://trueeconomics.blogspot.ie/2014/06/1462014-blackrock-institute-survey-n.html - very interesting changes in the first chart above can be traced.

Ireland top question analysis:

Note: these views reflect opinions of survey respondents, not that of the BlackRock Investment Institute. Also note: cover of countries is relatively uneven, with some countries being assessed by a relatively small number of experts.

11/7/2014: BlackRock Institute Survey: EMEA, July 2014

BlackRock Investment Institute released its latest Economic Cycle Survey for EMEA region.

Per BII: "With caveat on the depth of country-level responses, which can differ widely, this month’s EMEA Economic Cycle Survey presented a mixed outlook for the region.

The consensus of respondents describe Russia, the Ukraine and Croatia be in a recessionary state, with an even  split of economists gauging Kazakhstan and South Africa to be a in a recessionary or contraction. Over the next two quarters, the consensus shifts toward expansion for Kazakhstan and South Africa.

Note: Red dot represents Czech Republic, Hungary, Romania, Israel, Slovenia, Poland and Slovakia

At the 12 month horizon, the consensus expecting all EMEA countries to strengthen or remain the same with the exception of Russia, Kazakhstan, Turkey, Hungary and the Ukraine.

Globally, respondents remain positive on the global growth cycle with a net 85% of 34 respondents expecting a  strengthening world economy over the next 12 months – an 14% increase from the net 71% figure last month. The consensus of economists project mid-cycle expansion over the next 6 months for the global economy."

Note: these views reflect opinions of survey respondents, not that of the BlackRock Investment Institute. Also note: cover of countries is relatively uneven, with some countries being assessed by a relatively small number of experts.

14/6/2014: BlackRock Institute Survey: EMEA, June 2014

BlackRock Investment Institute released its latest Economic Cycle Survey for EMEA region.

Per BI: "With caveat on the depth of country-level responses, which can differ widely, this month’s EMEA Economic Cycle Survey presented a mixed outlook for the region.

The consensus of respondents describe Russia, South Africa, Slovenia, Croatia, and the Ukraine to be in a recessionary state, with an even split of economists gauging Kazakhstan to be a in a recessionary or contraction.

Note: Red dot represents Czech Republic, Hungary, Romania, Israel, Egypt, Poland and Slovakia

Over the next two quarters, the consensus shifts toward expansion for only Kazakhstan.

At the 12 month horizon, the consensus expecting all EMEA countries to strengthen or remain the same with the exception of Israel, Kazakhstan, Slovenia, South Africa and the Ukraine.

Globally, respondents remain positive on the global growth cycle with a net 71% of 41 respondents expecting a strengthening world economy over the next 12 months – an 7% decrease from the net 78% figure last month. The consensus of economists project mid-cycle expansion over the next 6 months for the global economy."


Note: these views reflect opinions of survey respondents, not that of the BlackRock Investment Institute. Also note: cover of countries is relatively uneven, with some countries being assessed by a relatively small number of experts.

6/5/2014: BlackRock Institute Survey: EMEA, April

BlackRock Institute published their April 2014 survey of economic conditions in EMEA region. Here are some takeaways:

1. "The consensus of respondents describe Russia, Slovenia, Croatia, Turkey and Turkey to be in a recessionary state, with an even split of economists gauging Kazakhstan and Egypt to be a in a recessionary or contraction."
2. "Over the next two quarters, the consensus shifts toward expansion for only Egypt."
3. "At the 12 month horizon, the consensus expecting all EMEA countries to strengthen or remain the same with the exception of Slovenia, Turkey, Russia and the Ukraine."

Russian economy specifics:

• "How do you think Russia's economy will develop over the next 12 months?" 72% of respondents expect economy to become weaker or a lot weaker
• "At this time, in which phase of the economic cycle would you say Russia's economy is?" 100% of respondents estimate that the Russian economy is currently in a recession.
• "Over the next 6 months, in which phase of the economic cycle would you say Russia's economy will be?" 86% of respondents expect Russian economy to remain in a recession.
• 57% of respondents estimate that currently Russian economy is operating with a positive or zero output gap.
• 71% of respondents estimate that currently Russian economy operates at above trend inflation that is increasing.

"Globally, respondents remain positive on the global growth cycle with a net 78% of 40 respondents expecting a  strengthening world economy over the next 12 months – an 9% decrease from the net 87% figure last month. The consensus of economists project mid-cycle expansion over the next 6 months for the global economy."

Note: Red dot represents South Africa, Czech Republic, Hungary, Romania, Israel, Poland and Slovakia.

Note: these views reflect opinions of survey respondents, not that of the BlackRock Investment Institute. Also note: cover of countries is relatively uneven, with some countries being assessed by a relatively small number of experts

8/2/2014: BlackRock Institute Survey: EMEA, February

BlackRock Investment Institute released its latest Economic Cycle Survey for EMEA region. Emphasis is mine.

"With caveat on the depth of country-level responses, which can differ widely, this month’s EMEA Economic Cycle Survey presented a bullish outlook for the region.

"The consensus of respondents describe Slovenia, Croatia, Turkey and, the Ukraine to be in a recessionary state, with an even split of economists gauging South Africa to be in expansion or contraction. Over the next two quarters, the consensus shifts toward expansion for South Africa and the Ukraine."

Note: Red dot represents Czech Republic, Kazakhstan, Hungary, Romania, Poland, Slovakia

And out 12 months: "At the 12 month horizon, the positive theme continues with the consensus expecting all EMEA countries to strengthen or remain the same with the exception of Turkey."

"Globally, respondents remain positive on the global growth cycle with a net 88% of 43 respondents expecting a strengthening world economy over the next 12 months – an 6% increase from the net 82% figure last month. The consensus of economists project mid-cycle expansion over the next 6 months for the global economy."

Note: these views reflect opinions of survey respondents, not that of the BlackRock Investment Institute. Also note: cover of countries is relatively uneven, with some countries being assessed by a relatively small number of experts.

17/1/2014: BlackRock Institute Survey: EMEA, January

BlackRock Investment Institute released its latest Economic Cycle Survey for EMEA region. Emphasis is mine.

"With caveat on the depth of country-level responses, which can differ widely, this month’s EMEA Economic Cycle Survey presented a bullish outlook for the region."

The consensus of respondents describe Slovenia, Croatia, Egypt and, the Ukraine to be in a recessionary state and expected to remain so over the next 6 months except for Croatia, where there is an even split between expansion and contraction.

Note: Red dot represents Czech Republic, Kazakhstan, Hungary, Romania, Israel, Poland and Slovakia

At the 12 month horizon, the positive theme continues with the consensus expecting all EMEA countries to strengthen with the exception of Turkey. So Russia is improving 6mo forward improvement in outlook on current phase (see above chart), but Ukraine is expected to remain in a late cycle recession. Out at 12mo horizon, Ukraine is still expected to underperform Russia.

Note Slovenia's performance expectations. It is worth noting that the IMF is releasing Slovenia's economy's assessment, so it would be interesting to take a comparative look at the Fund expectations.


Globally, respondents to the EMEA survey "remain positive on the global growth cycle with a net 82% of 61 respondents expecting a strengthening world economy over the next 12 months – an 8% increase from the net 75% figure last month. The consensus of economists project mid-cycle expansion over the next 6 months for the global economy."

Note: these views reflect opinions of survey respondents, not that of the BlackRock Investment Institute. Also note: cover of countries is relatively uneven, with some countries being assessed by a relatively small number of experts.

12/12/2013: BlackRock Institute Survey: EMEA, December 2013

BlackRock Investment Institute released its latest Economic Cycle Survey for EMEA region.


"With caveat on the depth of country-level responses, which can differ widely, this month’s EMEA Economic Cycle Survey presented a bullish outlook for the region. The consensus of respondents describe Slovenia, the Ukraine, Croatia, Egypt and Russia currently to be in a recessionary state.

Forward expectations:

• Over the next 6 months, "the consensus shifts toward expansion for Russia and Egypt and an even split between expansion and contraction for Croatia."
• "At the 12 month horizon, the positive theme continues with the consensus expecting all EMEA countries to strengthen or remain the same, with the exception of Slovenia and Ukraine."

Global economy view from the region: "Globally, respondents remain positive on the global growth cycle, with a net 74% of 58 respondents expecting a strengthening world economy over the next 12 months, unchanged from last month’s report. The consensus of economists project mid-cycle expansion over the next 6 months for the global economy"

Note: Red dot represents Slovakia, Poland, Romania, Israel, Kazakhstan, and South Africa

Note: these views reflect opinions of survey respondents, not that of the BlackRock Investment Institute. Also note: cover of countries is relatively uneven, with some countries being assessed by a relatively small number of experts.

5/11/2013: BlackRock Institute survey: EMEA October 2013

BlackRock Investment Institute released its latest Economic Cycle Survey for EMEA region.
 A note on latest survey results for North America & Western Europe is available here.

"With caveat on the depth of country-level responses, which can differ widely, this month’s EMEA Economic Cycle Survey presented a bullish outlook for the region."

"The consensus of respondents describe Slovenia, the Ukraine, Croatia and Russia currently to be in a recessionary state, with an even split of economists gauging Egypt to be in expansion or contraction. Over the next 2 quarters, the consensus shifts toward expansion for Russia, Croatia and Egypt and an even split between expansion and contraction for the Ukraine."

"At the 12 month horizon, the positive theme continues with the consensus expecting all EMEA countries to strengthen or remain the same, with the exception of Russia." Russian sentiment has deteriorated significantly in recent months.

"Globally, respondents remain positive on the global growth cycle, with a net 73% of 57 respondents expecting a strengthening world economy over the next 12 months – a 13% decrease from the net of 86% figure in last month. The consensus of economists project a shift from early cycle to mid-cycle expansion over the next 6 months."

Note: these views reflect opinions of survey respondents, not that of the BlackRock Investment Institute. Also note: cover of countries is relatively uneven, with some countries being assessed by a relatively small number of experts.

Here are two summary charts:

Note: Red dot represents Slovakia, Poland, Israel, Kazakhstan, and South Africa. 

6/9/2013: BlackRock Institute survey: EMEA: August 2013

BlackRock Investment Institute released its latest Economic Cycle Survey for EMEA region.
 Note: my note on survey results for North America & Western Europe is available here.

Per summary: "... this month’s EMEA Economic Cycle Survey presented a generally bullish outlook for the region. 

The consensus of respondents describe Slovenia, the Ukraine, Croatia, Egypt and Russia currently to be in a recessionary state, with an even split of economists gauging Slovakia to be in expansion or contraction. Over the next 2 quarters, all these countries are expected to stay in a recessionary state except Russia, Slovakia and Croatia. 

At the 12 month horizon, the positive theme continues with the consensus expecting all EMEA countries to strengthen or remain the same, with the exception of the Ukraine and Turkey."

Note: these views reflect opinions of survey respondents, not that of the BlackRock Investment Institute. Also note: cover of countries is relatively uneven, with some countries being assessed by a relatively small number of experts.

Here are two summary charts:

10/8/2013: EMEA Forward Economic Conditions: BlackRock Institute

The BlackRock Investment Institute Economic Cycle Survey : EMEA Aggregate Results were published recently, so here is the update.

Note: the views expressed in the survey are those of the external panel of economics and finance experts and not of the BlackRock Investment Institute.
The results of the survey must be viewed as being subject to the depth of country-level responses considerations, as these can differ widely.

Per the results: "this month’s EMEA Economic Cycle Survey presented a generally bullish outlook for the region. The consensus of respondents describe Slovenia, the Ukraine, Croatia and Czech Republic currently to be in a recessionary state, with an even split of economists gauging Slovakia to be in a expansion or contraction. Over the next 2 quarters, the consensus shifts for all these countries, except the Ukraine and Slovenia, towards expansion.
At the 12 month horizon, the positive theme continues with the consensus expecting all EMEA countries to strengthen, with the exception of Kazakhstan and Turkey."

In comparison, "Globally, respondents remain positive on the global growth cycle, with a net 68% of 62 respondents expecting a strengthening world economy over the next 12 months - this is marginally lower than from a net 70% in last month’s report."

Two charts to map regional economies prospects:

Eastern European Currencies & Soros

Per Financial Times report (here): CBs of Eastern Europe are issuing coordinated statements calling recent currency weakness unjustified and raising the possibility of intervention on foreign exchange markets. Take this, in line with George Soros' weekend cry to arms for state-led socialism to replace liberal financial markets regulation (as if such really does exist in any developed country today). Recall the classic lesson taught by Soros in the case of British experience with ERM: Central Banks interventions in Forex markets impoverish taxpayers and enrich George Soros.

So what should the strategy be for anyone with a position in Poland’s zloty, Hungary’s forint, the Czech koruna and the Romania’s leu? These currencies rallied after the statement. Three scenarios are thus possible:
Scenario 1: CBs mount a spirited defense driving currency valuations up for ca 1 month before all currencies come down again on the back of excessive fiscal deficits, private economy contractions and implosions of housing bubbles (in some countries), with private banking continuous deterioration (in other). Foreign banks and domestic banks use the opportunity to aggressively expatriate capital at higher currency valuations, driving down demand for domestic paper. Shorting now is a 'win' proposition.
Scenario 2: CBs do not mount a serious/credible defense and instead preside over further devaluation to bring currencies down to longer term recessionary equilibrium levels. Foreign banks, suffering their own crisis at home continue to expatriate capital, further contributing to devaluation pressures. Shorting now is a 'win' proposition.
Scenario 3: George Soros gets his wish and EU-styled over-regulation reigns supreme over the Forex markets in which case we get stiffening of the ERM mechanism and a coordinated effort on behalf of the EU to drive down the Euro over a period of time. No Eastern European country would enter an ERM band at a peril to its exporters, so Poland (and potentially at a later date - Hungary, Romania and Czech) will devalue their currencies before the ERM accession to boost the chances of economic recovery. Shorting now is a 'win' proposition.

As with the 1990s ERM crisis, this is a one-way bet assuming you have a stomach for being open in the Eastern European currencies in the first place. (All usual caveats apply of course, plus a disclosure: I hold no open position in the above currencies.)