Transcript A4 - Finmedia

Romania
face – to –face with
Hungary
Cluj, 16 June 2006
1
Contents
 COUNTRY RATINGS
 MACROECONOMIC STATISTICS
 ECONOMIC OUTLOOK 2005 - 2009
 COUNTRY RISKS & OPPORTUNITIES
 COMPANIES PERFORMANCE IN 2005
 COMPANIES OUTLOOK 2006
 SIMILARITIES
 CONCLUSIONS
2
COUNTRY KEY DATA
KEY DATA
ROMANIA
HUNGARY
AREA sq. km
238.391
93.033
POPULATION
21.6 mn
10.1 mn
GDP (2005)
79.3 bn
87.8 bn
EUR 3.660
EUR 8.700
A4
A2-
Moderately High
Risk
Low risk
PER CAPITA GDP
(2005)
Coface Short
term Rating
Coface Medium
Rating
3
@rating 2006
COUNTRY
RATING
ROMANIA
HUNGARY
Dec
2005
A4
A2-
June
2005
Dec.
2004
June
2004
Dec.
2003
June
2003
B+
B
B
B
B
A2
A2
A2
A2
A2
-
A2: Default probability is still weak even in the case when one
country's political and economic environment or the payment record of
companies is not as good as in A1-rated countries.
A4 : An already patchy payment record could be further
worsened by a deteriorating political and economic environment.
Nevertheless, the probability of a default is still acceptable.
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COFACE COUNTRY RATINGS
Country
Rating
April
2006
June
2005
Dec.
2004
June
2004
Dec.
2003
June
2003
Hungary
Romania
A2A4
A2B+
A2
B
A2
B
A2
B
A2
B
Austria
A1
A1
A1
A1
A1
A1
France
A1
A1
A1
A2
A2
A2
Czech R.
A2
A2
A2
A2
A2
A3
Slovenia
A2
A2
A2
A2
A2
A2
Poland
A3
A3
A3
A4 +
A4
A4-
Slovakia
A3
A3
A3
A3
A3
A4
Croatia
A4
A4
A4
A4
A4
A4
Bulgaria
A4
B+
B+
B
B
B
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Economic outlook ROMANIA (1)
 Growth has been good in 2004-05
 But GDP fell from 8% to 4% in 2005 as government consumption
decreased
 Private consumption and investment both held up well
 At 9% and 13% growth respectively
 Consumption was kept up by credits, low interest rates and the 16%
flat tax
 Consumer goods sector will fall in 2006
 With consumption likely falling from 9.0% growth to 5% this year
6
Economic outlook ROMANIA (2)
 Industrial production and fixed investment will keep the
economy growing at 4.5-5.3% range for next three years
 The current-account deficit is a problem and widened to
9% last year
 As import demand stayed high, fuelled by credit growth
of 45%
 And nominal wage rises of 20% (real rises of 10%)
 The good news is that 75% of the deficit is covered by
FDI flows
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Economic outlook ROMANIA (3)
 FDI will pick at about $9bn this year
 FX reserves stand short of $20bn, some 6 months of import
coverage
 EU: Romania is committed to spending some 25bn Euros in
the next 10 years on EU related projects and programmes
 Flat tax of 16% on incomes and profits hurt government
revenues
 Inflation is coming down from 9% in 2004 to 8.6% last year
 NBR raised interest rate sharply in January this year by 1% to
8.5%
 Rates will stay high this year and could fall a bit in 2007
8
Economic outlook ROMANIA (4)
 Minimum reserve requirement on FX-denominated liabilities was also raised
 This combined with recent sharp leu appreciation
 Is/will ensure a tightening up of economy
 And ensure reduced consumer goods sales and perhaps lower industrial
sales
 As a result we expect inflation to fall to 6.8% this year and 5% next year
 The downside is that a stronger currency will curb exports
 The strong leu, rising wages and weak productivity have all hurt Romanian
competitiveness
 The leu will remain very strong at 3.6 – 3.7 to Euro this year
 The leu has appreciated 16% in 2005 and by another 7-8% this year
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Economic Outlook HUNGARY(1)
GDP outlook is average annual growth of 4.3% for next 4 years
Driven by:
 Buoyant exports (up 10%)
 Private sector investment
 Minimum wage rise
 EU expenditure
 Personal incomes up thanks to falling VAT (from 25% to 20%)
 Continued credit expansion
 Inflation trend is extremely positive
 Lower inflation means the National Bank less worried about weakening forint
10
Economic Outlook HUNGARY(2)
 National Bank has been very relaxed in face of recent falling forint
 Central rate has stayed at 6% since September 2005
 With top line inflation at 2.5%, this means that real rates about 3.5% - still
high
 Inflation low due to:






Strong forint until spring 2006
Plus strong productivity gains
Tight, competitive markets
Discount retailers
Falling nominal wages
Unemployment stuck at 6.5% for next 3 years
 Hungarian productivity has massively improved
 Unit labour costs in 2003 were rising 23% in $ and 10% in forints
 In 2005 this was down to 5% and will be 2-3% this year
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Economic Outlook HUNGARY(3)
 Invested more in IT and brought down nominal wage rises
 Risks to low inflation are weaker income policies or booming oil
price
 Central Bank would probably look to monetary intervention on
the markets…
 If and when forint reaches 270-273 to euro
 Main issue remains the double deficits: budget (6.5% this year)
and current account (8%)
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Economic statistics (1)
2002
2003
2004
5.1
5.2
8.4
4.1
5.6
5.5
3.8
3.4
4.6
4.1
4.2
3.8
22.5
15.3
11.9
9.0
7.5
6.2
5.3
4.7
6.8
3.6
2.1
2.7
1.194 1.910 5.127 5.208
8.000
5.000
2.889
4.000
3.500
Key data (% change)
GDP (real)
CONSUMER PRICES
(yearly average)
FDI
(inflow, net in EUR mn)
2005 2006 f 2007 f
424 2.860 4.271
Unemployement
(yearly average)
10.2
7.6
6.8
5.8
5.7
5.5
5.8
5.9
6.1
7.2
7.1
6.8
Budget deficit
(in % of GDP)
-2.5
-2.2
-1.2
-0.8
-1.0
-1.5
-8.4
-6.4
-5.4
-6.1
-5.5
-4.1
ROMANIA
HUNGARY
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Economic statistics (2)
2002
2003
2004
2005
2006
f
2007
14.675
15.614
18.935
22.255
26.000
30.000
36.821
38.377
45.083
49.794
55.990
61.800
17.427
19.569
24.258
30.061
36.000
42.000
39.024
41.275
47.536
51.343
57.220
62.920
-1.623
-3.060
-5.099
-6.891
-9.000
-10.000
-4.929
-6.382
-6.976
-6.405
-6.150
-6.130
Current account
(in % of GDP)
-3.4
-5.8
-8.4
-8.7
-9.6
-9.3
-7.1
-8.7
-8.6
-7.3
-7.0
-6.5
Import cover
(in months)
3.5
3.4
4.8
5.9
6.4
6.2
2.8
2.9
3.1
3.2
3.2
3.1
33.4
33.9
35.8
38.5
39.0
41.3
56.0
64.7
70.2
77.4
82.4
79.4
Key data (Million
EUR)
Merchandise exports
Merchandise imports
Current account
Gross Foreign Debt
(in % of GDP)
ROMANIA
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HUNGARY
Economic Outlook 2005 – 2009 (1)
2005
2006
2007
2008
2009
GDP
4.1
4.6
5.2
4.6
3.9
GDP
4.2
4.4
4.4
4
3.8
Private consumption
9
4.9
4.9
5.2
5.8
Private consumption
2.4
3.8
3
3
3.6
Fixed investment
13
12
11
10
9
Fixed investment
5
7.5
7
6
5.8
Inflation year-end
8.6
6.8
5
4.1
3.6
Inflation (year-end)
3.3
2
2.6
2.3
2.2
Budget deficit (% of GDP)
-0.8
-0.7
-0.7
-0.7
-0.7
Budget deficit
-6.3
-6.8
-5.4
-4.8
-4.2
Leu:Euro – year-end
3.68
3.85
3.75
3.5
3.4
252
262
258
249
240
Key data
Forint:Euro (year-end)
ROMANIA
HUNGARY
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Business Outlook (1)
ROMANIA
•
Excellent business outlook but
new risks
•
Romania has been a booming
market for western MNCs
•
Results in 2004 were excellent
and 2005 was good
•
Rated third most promising
market (after Russia and Turkey) for
2006-07
•
Along with Russia & Ukraine, it is
one of fastest growing markets in
CEE
HUNGARY
•
Currently low performer in
the CEE region
•
Companies in IT, apparel,
consumer goods and packaging
among others all report a tough
environment
•
Many companies hoped that
2005 would be a pick up year
but this proved wrong
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Business Outlook (2)
ROMANIA
HUNGARY
 60% of companies expect
double-digit sales growth in 2006
 An important CEE market and
accounts for 12% of total CEE
regional sales
 This is down from 65% achieved
in 2005
 Only 12% of companies saw flat
or falling sales in 2005-06
 80% of companies anticipate
single or double digit sales
growth in 2006
 Industrial companies are more
cautious than consumer goods
 25% of all companies saw falling
or flat sales in 2005 and some
20% think this will be repeated in
2006
 Although consumer goods appear
to face more pressures
 This is much more sober an
outlook than 12 months ago
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Business Outlook (3)
ROMANIA
HUNGARY
 Profits are a bit tougher
 75% of companies saw sales below
double digit growth
 With 20% reporting flat or falling
profits in 2005
 But, still, 55% expect profits to
grow double digit in 2006
 While only 5% anticipate a profit
slowdown
 In 2005 a quarter of companies
recorded double digit sales growth
 A huge 55% of companies reported
falling or flat profits in 2005
 And 25% expect the same this year
 But profit growth did slow already
in 2005
 Overall industrials perform better
than consumer goods companies
 And we anticipate 2007 will be
slower year for sales
 Most companies still rate it as one
of their top 5 priority markets over
the next 3-5 years (!)
 As for profits
18
Business Outlook (4)
ROMANIA
HUNGARY
 2005 was the year when
competition really took off in
Romania
 2007-08 ought to be quite tough
for business
 Outlook will be quite good,
but risks are growing
 Political risk is mounting and
hiccups in reforms
 This may see postponement
for EU entry from 2007 to
2008 (less than 25% chance)
 Business to government sales will
be very tough
 Government spending growth will
stay below 1% for next three years
 Companies already complain of late
payment from government sources
 B2B ought to hold up as fixed
investment will rise over 5% per
annum next 3 years
19
Business Outlook (5)
ROMANIA
HUNGARY
 Picture looks good for consumer
goods, pharma and industrials
 Growth in IT spending will be worst
in region after Slovenia
 Surge in FDI in 2005 up to $5bn  Major IT companies already complain
and EU entry upgrades will ensure of very poor market
good equipment and tooling sales
 Overall IT market will grow 6% per
in 2006-08
annum in 2006-07 driven by EU
 But for FMCGs days of easy
 Most of shortfall could be in hardware
money are disappearing
rather than software and services
 Bucharest is a strong market, but
rural population lives on 30 Euro  But software struggling as well
per month
 Indian and Chinese competition is
growing in IT
 The IT market is a $1bn, growing
at 10% per annum in next three
years
20
Business outlook (6)
ROMANIA
 Business environment is far
from perfect, though, but is
improving
 Corporate flat tax of 16%
(though this may hurt
government revenues)
 Changes needed to customs
and trading laws
 Implementation of laws is as
usual the main headache
HUNGARY
 Hungary has been reluctant to
spending changes by the
government at election times
 This has created market of
boom and bust
 But the bust has settled in now
 With the the socialist party in
power…
 Some degree of tightening will
occur – but how much?
 Companies should prepare
themselves for further slow
down
21
Business outlook (7)
ROMANIA
 Also watch out: economic risk
is rising
 2006 will be a year of
business consolidation after
boom of 2004 and mini-boom
of 2005
 And that consolidation will
continue in 2007
HUNGARY
 Other CEE countries, except
Hungary, have brought their deficits
down already quite quickly
 Hungary expects a budget deficit of
almost 7% this year
 Falling to 4.5% in 2008
 However it seems that all parties
have postponed Euro entry to 2011
or even 2012
 This probably means government
spending cuts will be less savage
than otherwise
22
General market conclusions
ROMANIA
HUNGARY
 Clear limits to business growth
 It’s a very mature market which
has transitioned
 Rural areas may not be so
attractive as core CEE…
 Food & beverages account for
40% of consumer spending
(similar to Russia & Bulgaria)
 These are “pre-modern”
consumption patterns compared
with mid- 20% figures in core
CEE
 Strong western competition
 Rising local competition
 Price pressures
 Volatile consumer behaviour
 Consumers looking for cheap
prices
 Brands under pressure
 More distributors coming into
manufacturing sectors
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MULTUMESC !
KÖSZÖNÖM !
References:
•COFACE COUNTRY REPORTS http://www.cofacecentraleurope.com
•AUSTRIA CREDITANSTALT BANK
http://www.ba-ca.com / CEE-Report
•NATIONAL INSTITUTE OF STATISTICS FROM ROMANIA
http://www.insse.ro
•The European Union in the World http://europa.eu.int/comm/world/
•Competition Authority http://www.gvh.hu
•Hungarian National Bank http://english.mnb.hu
•Hungarian Statistical Office http://www.ksh.hu
•International Chamber of Commerce http://www.icc.co.hu
•Banca Nationala A Romaniei http://www.bnro.ro/
•http://www.usaid.gov/pl/financia.htm
•http://www.marketresearch.com/map/prod/1068326.html
•IMF
http://www.imf.org/external/index.htm
•WORLD BANK http://www.worldbank.org/
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