CEE currencies seen falling in 2020 as growth slows

The Czech crown's strong run to start 2020 is likely to reverse in the next month and the Hungarian forint will creep back toward record lows this year, a Reuters poll showed, as analysts see slowing economies weighing on central European currencies.

Global factors such as trade worries and uncertainty regarding the UK's exit from the European Union provided headwinds for the region's currencies in 2019, but looking ahead economists see a range of local factors at play.

Economists expect the Polish zloty, the region's most liquid currency, to slip 1.6% against the euro amid a backdrop of slowing growth and rising inflation.

"The economy looks set to slow down... we've also got a central bank that probably won't be tightening interest rates this year even though inflation will rise to over 3.5% over the year as a whole," said Liam Peach, emerging Europe economist at Capital Economics.

"I think we will see more evidence that the external sector is struggling to cope with weakness in Germany."

Added to this are risks related to Swiss franc mortgages, amid fears the loans will be converted into the local currency on terms unfavourable to banks. The Hungarian forint, the worst-performing central European currency in 2019, is seen falling 1.35% to 335 against the euro.

Marcin Sulewski, an economist at Santander Bank Polska, believes the global picture will become brighter in 2020 but that it will not be enough to stop the forint's slide.

"The positive global market mood could slow this forint depreciation trend but we do not expect any firm reversal interest rates in Hungary are low and there is no sign that the bank will try to normalise its monetary policy in Hungary," he said.

Hungary's central bank is the most dovish in the region, and has kept rates at 0.9% since 2016. The Czech crown, which reached a 23-month peak this week, is seen weakening 0.7% against the euro as the economy slows.

The jump has caught many by surprise as analysts expected the crown to weaken in the first quarter of 2020, which led many to adjust their forecasts to stronger levels compared to predictions from one month ago.

"We are not overly bullish on the crown in the short-term as industrial weakness continues and the (central bank) is likely to become more dovish during 2020 unless CPI surprises on the upside," Citi analysts said in a note.

Romania's twin budget and current account deficits and political uncertainty look set to continue to weigh on the leu in the year ahead, with economists forecasting a 3% drop.

"We have to take into consideration the impact of political election promises that the current government gave, mainly increases in pensions. This is important because it effectively pushes the public deficit above the 3% threshold," said Krystian Jaworski, senior economist at Credit Agricole CIB. The Serbian dinar is seen slipping just 0.2%.