EUR/HUF likely to trade around 320.00 by end-2017, says Commerzbank

CE3 economies are strongly geared to German demand; they export around 30 percent of their total exports to Germany and another 35 percent to other developed European Union nations. Still, the acceleration in German demand has not translated one for one into faster CEE exports:

The pause in EU structural funding has been widely blamed for a slowdown in GDP growth in CEE; most policymakers anticipate a punchy recovery this year when those funds return. The German Ifo reading last week provides a sneak peak why the EUR/HUF currency pair is expected to trade around 320.00 by end of this year, Commerzbank reported.

There could be several reasons why CE3 exports have fallen behind; first, although the divergence appears stark during 2016, CEE export recovery was weak during the entire post euro zone debt crisis years. This is partly because other developed EU members were weak but, this was no longer such a strong depressant by 2016.

Secondly, the entire region was operating at far below full capacity utilization; hence, the tendency to import from emerging markets was less, at the margin. Third, the pricing power of CE3 exporters was affected as ‘deflation fears’ around euro zone reached a crescendo in 2016; this lowered the value of CE3 exports.

"In order to summarize, stronger Ifo readings must first show up in stronger exports by emerging countries before they can boost their GDP and this is not happening yet," the report said.