The eurozone's turmoil could weigh on currencies in the European Union's emerging east over the next year even if the crisis-hit bloc does not sink deeper into the mire, a poll of analysts showed on Thursday.
The Czech crown, Hungarian forint, Romanian leu and Polish zloty are seen posting gains versus the euro in the one-year horizon, rebounding from sharp falls in recent weeks after an escalation of Greece's crisis and woes in Spain's banking sector triggered more risk aversion.
But exchange rates projected for the units in the regular poll are weaker than levels forecast in May, and analysts see a slight weakening of the currencies for the next 1-3 months.
The zloty, backed by the region's biggest economy, is seen firming 4 percent in the next 12 months from Wednesday's close, to 4.13 versus the euro, compared with 4.0 projected in May.
Hungary, made vulnerable by high debt and a delay in securing international aid, could see its forint gaining 3.4 percent against the euro, to 285 by June next year. The median forecast last month was 282.
Median forecasts changed to 24.73 from 24.3 for the crown, representing a 2.9 percent gain, and to 4.35 from 4.3 for the leu, which would be firmer by 2.6 percent from Wednesday's levels.
Europe's debt woes have led to an economic slowdown in the euro zone and pushed most of central Europe's emerging economies that rely heavily on trade with the west into or near recession.
Investors have also braced for a huge spike in risk aversion in the event that Greece exited the euro zone, a chance made real by strong support for anti-bailout Greek parties ahead of a national poll on Sunday.
A Greek exit could push emerging European markets into a downward spiral similar to that seen during the 2008 financial crisis, when currencies lost up to a third of their value following the collapse of Lehman Brothers. Even if that did not happen, analysts said the euro zone's troubles with debt and banks will continue to hinder currencies, and several said that an easing of the crisis was a condition for appreciation.
"We can see some strengthening in the very short run (1-2 weeks) if there is a benign outcome from the Greek election, but that is not the major issue for CEE - the wider banking crisis in the euro zone is still out there and still unresolved," said Nomura analyst Peter Attard Montalto.
"ECB (monetary) easing in Q3 can buy some more time but the simple story is that CEE currencies remain a risk proxy for the euro zone and things will get worse before they get better."
The forint can also get support from hopes that Hungary will secure an international aid deal by the end of the year. But the unit is seen shedding more then 1 percent against the euro by the end of this month to 298, in the aftermath of Greece's elections. "There can be a negative reaction by the forint and the zloty after the Greek vote, and the forint can easily weaken beyond 300, but I don't think that it would return to its record lows beyond 320," said Janos Samu of Concorde in Budapest.
"I don't think that Greece will leave the euro zone, I rather expect new compromises (in Europe), and the risks priced in by markets may be exaggerated," he added.
Any later gains of the forint could be limited as Hungary's central bank is likely to cut interest rates once the country reaches agreement with international lenders, which would stabilise Hungary's risk profile, analysts said. The poll also shows some easing by the crown in the next weeks as the central bank may loosen monetary policy, and only mild gains in the next three months to 25.38 against the euro.
"A Q1 GDP contraction and bleak economic outlook, plus the expected negative contribution to growth from planned fiscal restriction measures (in 2013), increase the probability of further CNB (central bank rate) cuts," said Vojtech Benda, ING analyst in Prague.
Comments
Comments are closed.