cee: a time of change · 2014. 5. 6. · 30 40 50 60 70 80 4q02 1q04 2q05 3q06 4q07 1q09 2q10 3q11...

CEE: A time of change

Carlos Ortiz, CEE Economist, UniCredit Bank London

UniCredit SEE markets roadshow: Luxembourg, April 2014

3 3

Topics

▪ Brief outlook for the global economy

▪ CEE – impact from higher growth on developed markets

▪ CEE and the interest rate normalisation process

▪ Country specifics

- Russia & Ukraine: A primary risk to CEE

- Central Europe: Recovery underway (HU, RO, SK)

- The Balkans: More work to be done (SI, RS, HR, BG)


4

Source: Consensus, IMF, OECD, UniCredit Research

Eurozone: we are above consensus. Periphery plays catch-up

GDP Forecasts

2013 2014 2015 2014 2015 2014 2015 2014 2015

EMU -0.4 1.5 1.7 1.0 1.4 1.0 1.6 1.1 1.4

Germany 0.5 2.5 2.5 1.6 1.4 1.7 2.0 1.8 2.0

France 0.3 1.1 1.4 0.9 1.5 1.0 1.6 0.8 1.2

Italy -1.8 0.9 1.4 0.6 1.1 0.6 1.4 0.5 1.0

Spain -1.2 1.0 1.4 0.6 0.8 0.5 1.0 0.9 1.5

Periphery* -1.6 0.9 1.4 0.7 1.2 0.6 1.3 0.7 1.3

Consensus

(Mar-14)

* Weighted average of Italy, Spain, Greece, Portugal and Ireland

UniCredit

(Mar-14)

IMF

(Jan-14)

OECD

(Nov-13)

5

Source: BoI, Markit, UniCredit Research

The eurozone recovery looks good, so far

1.5% GDP (saar)

-1.5

-1.2

-0.9

-0.6

-0.3

0.0

0.3

0.6

0.9

1.2

1.5

Aug-98 Mar-01 Oct-03 May-06 Dec-08 Jul-11 Feb-14

35

40

45

50

55

60

65

EuroCOIN - LS

Composite PMI - RS

Source: EC, Eurostat, Markit, UniCredit Research

Capex recovery to gain traction as firms’ fundamentals improve

67

69

71

73

75

77

79

81

83

85

87

1Q96 3Q98 1Q01 3Q03 1Q06 3Q08 1Q11 3Q13

-25

-20

-15

-10

-5

0

5

10

15

Capacity Utilization (%) - LS

Capex (% yoy) - RS-10

-8

-6

-4

-2

0

2

4

6

8

10

1Q96 3Q98 1Q01 3Q03 1Q06 3Q08 1Q11 3Q13

-25

-20

-15

-10

-5

0

5

10

15

Gross Operating Surplus (% yoy) - LS

Capex (% yoy) - RS

-5

-4

-3

-2

-1

0

1

2

3

1Q96 3Q98 1Q01 3Q03 1Q06 3Q08 1Q11 3Q13

-10

-8

-6

-4

-2

0

2

4

6

8

10

Productivity (% yoy) - LS

Gross Operating Surplus (% yoy) - RS

-5

-4

-3

-2

-1

0

1

2

3

3Q98 1Q01 3Q03 1Q06 3Q08 1Q11 3Q13

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

Productivity (% yoy) - LS

Composite PMI Output-Employment - RS

Slowing fiscal consolidation helps sequential GDP growth

Source: EC, UniCredit Research

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2009 2010 2011 2012 2013 2014

Eurozone: change in structural budget balance (pp)

Positive number: fiscal easing

Negative number: fiscal tightening

8

Source: EC, UniCredit Research

Low inflation supports consumer confidence (and spending)

Consumer confidence (standardized)

-3.0

-2.5

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

Jan-99 Jul-01 Jan-04 Jul-06 Jan-09 Jul-11 Jan-14

Overall

Unemployment

Financial Situation

9

Source: Eurostat, UniCredit Research

Labor market: at a turning point…

-250

-150

-50

50

150

250

350

450

Sep-02 Dec-04 Mar-07 Jun-09 Sep-11 Dec-13

7.0

7.5

8.0

8.5

9.0

9.5

10.0

10.5

11.0

11.5

12.0

12.5Unemployment change (in 000's) - LS

Unemployment rate (in %) - RS

10

Source: ECB, UniCredit Research

Lending cycle: still weak…

-8

-6

-4

-2

0

2

4

6

8

10

12

14

16

18

Aug-04 Dec-05 Apr-07 Aug-08 Dec-09 Apr-11 Aug-12 Dec-13

-4

-2

0

2

4

6

8

10

12

Loans to NFCs, % yoy - LS

Loans to households, % yoy - RS

Source: ECB, UniCredit Research

…but the BLS suggests there may be light at the end of the tunnel

-20

-10

0

10

20

30

40

50

60

70

80

4Q02 1Q04 2Q05 3Q06 4Q07 1Q09 2Q10 3Q11 4Q12 1Q14

35

40

45

50

55

60

65

Factors affecting credit standards - economic and sector specific outlook (%) - LS

Composite PMI - RS (inv.)

Credit standards (net percentage)

-30

-20

-10

0

10

20

30

40

50

60

70

1Q03 3Q04 1Q06 3Q07 1Q09 3Q10 1Q12 3Q13

Loans to NFCs

Loans for house purchase

Demand conditions (Net percentage)

-70

-60

-50

-40

-30

-20

-10

0

10

20

30

40

50

60

1Q 03 3Q 04 1Q 06 3Q 07 1Q 09 3Q 10 1Q 12 3Q 13

Corporate lending

Loans for house purchase

(net percentage)

-15

-10

-5

0

5

10

4Q02 2Q04 4Q05 2Q07 4Q08 2Q10 4Q11 2Q13

-50

-40

-30

-20

-10

0

10

20

30

40

50Factors affecting loan demand: internal financing - LS

Corporate loan demand - RS

12 12

Topics









13 13

CEE: 1. The recovery is underway and will gather pace…

GDP growth expected to improve gradually…

Sources: National Statistical Offices, Have Analytics, Unicredit Research

-8.0

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

UA HR SI TR RU RS BG RO CZ HU SK PL LT

2012

2013

2014

2015

% yoy

14

…. helped by industrial production…

Industrial production

14

Exports of road vehicles

Source: Eurostat, UniCredit Research

-40.0

-20.0

0.0

20.0

40.0

60.0

80.0

100.0

CZ HU PL RO SK TR

Dec-08

Dec-09

Dec-12

Dec-13

Euro area registrations Dec 08




% yoy 3M MA

-8.0

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

UA

HR SI

BG

RU

CZ

HU

PL

TR LT

SK

RS

RO

2012 2013 2M2014

% yoy

15 15

… via external demand

CEE exports are correlated with German export expectations


75

80

85

90

95

100

105

110

115

120

-30

-20

-10

0

10

20

30

40

50

60

Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14

Czech Republic - total exports Hungary - total exports Poland - total exports

Romania - total exports Slovakia - total exports IFO Export expectations - rhs

3MMA, yoy (%) pts

16 16

CEE: 2. Domestic demand recovering, helped by real wage growth…

Real wage growth is boosted by low inflation and recovering industrial production


-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0

CZ SK SI HU HR PL RU RO BG LT EE LV TR

Dec-11 Dec-12 Dec-13

% yoy

17 17

… while the credit impulse is positive in some countries…

Sources: Central banks, Statistical Offices, UniCredit Research

Poland Czech Republic

-10.0

-5.0

0.0

5.0

10.0

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

-15.0

-10.0

-5.0

0.0

5.0

10.0

15.0Change in new credit extended (pp of GDP)

Private consumption & GCF (yoy %, rhs)

-8.0

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

-8.0

-4.0

0.0

4.0

8.0

12.0


Private consumption & GCF (yoy %, rs)

18 18

… mildly positive or neutral in others…


Hungary Romania

-10.0

-8.0

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

-20.0

-15.0

-10.0

-5.0

0.0

5.0

10.0

15.0


Private consumption & GCF (yoy %, rhs)

-15.0

-10.0

-5.0

0.0

5.0

10.0

15.0

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

-20.0

-15.0

-10.0

-5.0

0.0

5.0

10.0

15.0

20.0

25.0

30.0Change in new credit extended

Domestic demand (rhs)

19 19

… but negative in the largest economies


Turkey Russia

-15.0

-10.0

-5.0

0.0

5.0

10.0

15.0

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

-25.0

-20.0

-15.0

-10.0

-5.0

0.0

5.0

10.0

15.0

20.0

25.0Change in new credit extended (pp of GDP)Domestic demand (yoy %, rs)

-10.0

-5.0

0.0

5.0

10.0

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

-20.0

-15.0

-10.0

-5.0

0.0

5.0

10.0

15.0

20.0


Private consumption & GCF (% YoY, rs)

20 20

CEE: 3. The fiscal tightening is done in most countries

Sources: Eurostat, UniCredit Research

Structural deficits in CEE – EC forecasts

-6.00

-4.00

-2.00

0.00

2.00

4.00

6.00

SI PL LT SK RO CZ LV BG HU EE

2011

2012

2013

2014

2015

% of potential GDP

21 21

… yet elections might lead to policy (including fiscal) slippages

Date Country Type

2014 15&29 March Slovakia President

16 March Serbia Parliament, Belgrade

30 March Turkey Local

6 April Hungary Parliament

11-25 May Lithuania President

22-25 May CEE EU Parliament

2 August Turkey President

4 October Latvia Parliament

5 October Bosnia & Herzegovina Parliament

2&16 November Romania President

2015 26 February Ukraine President

March Estonia Parliament

June Poland President

June Turkey Parliament

25 October Ukraine Kiev

October Poland Parliament

December Slovenia Parliament

Source: CEE parliaments, EU parliament

22 22

Topics









23 23

Capital outflows from EM amid lower risk appetite…

Sources: EPFR, UniCredit Research

EPFR bond fund flows to EM

-15.0

-10.0

-5.0

0.0

5.0

10.0

Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14

Total inflows

3M MA

Jul 09 - Jul 11 USD 57.6bn

Jan 12 - May 13 USD 61.5bn

Jun 2013 - Mar 2014 USD -47.5bn

USD bn

24 24

… affecting CEE yields but not more than other EM.

Sources: Bloomberg, UniCredit Research

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1.0

CZ PL KR HU TH RO IL MY MX SA TR PH ID RU BR

Current

1y ago

10Y nominal bond yield / 1y FX implied volatility

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

PH DE ID MY TH TR US CZ RU IL IN KR MX SA PL RO HU BR

Current

12M ago

10Y bond yield minus YoY headline CPI

25 25

FDI remains subdued…

Source: IMF, UniCredit Research

FDI to emerging markets

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

% of GDP

EM

CEE

LATAM

Portfolio flows to emerging markets

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

% of GDP

EM

CEE

LATAM

26 26

… but can be replaced by EU funds…

Sources: European Commission, national management authorities, UniCredit Research

In a low FDI environment, CEE countries that are members of the EU rely on EU funds

Data labels represent the percent of EU funds in 2013 GDP

32.6

36.5

43.9 28.3

32.543.2

27.2 36.4 35.630.9 17.7

0

20

40

60

80

100

120

140

PL RO HU CZ SK BG HR LT LV EE SI

Remaining funds from 2007-2013

Rural development

Structural and cohesion

EUR bn

27 27

(although absorption rates vary greatly)

Sources: European Commission, national management authorities, UniCredit Research

While absorption will pick up beyond 2013, many countries risk losing significant funding.

In Romania's and Bulgaria's cases, the government failed to absorb money in line with

the private sector.

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

EE PT LT GR FI BE DE DK SE IE PL CY LU LV NL AT CB FR ES SI HU UK SK IT MT CZ BG RO

Absorption ratios

EU average

% of allocation at the end of 2013

28 28

… leading to supportive basic balances for EU members

Basic balance = C/A + FDI + EU funds


-10.0

-5.0

0.0

5.0

10.0

15.0R

U

UA

TR

CZ

PL

SK

HR

RO SI

BG

HU

RS

LV

LT

% of GDP Basic Balance (∆ 2013-08)

29 29

Topics







- The Balkans: More work to be done (SI, SRB, HR, BG)


30 30

Russia & Ukraine : A primary risk to CEE (I)

▪ The escalation of financial sanctions against Russia threatens economic

activity and financial stability in the region. This risks forcing a more severe

downward revision of our forecasts for CEE.

▪ The risk comes from a halt of gas exports by Russia. This would benefit

neither East or West, but if it materialises CEE would be hit via 3 channels.

• Trade: Excluding Romania, CEE countries import ≥ 50% of all gas

from Russia. A halt in exports from the region to Russia would

neutralize a large part of the gains in exports to EMU, particularly for

Central Europe and Turkey.

• Financial integration: An escalation of tensions could put at risk

investments by corporate Russia in CEE, which has accelerated in the

past years (e.g. Southstream in Serbia, nuclear plant in Hungary).

• Portfolio outflows: Global risk aversion would resume and generate

the potential for significant round of portfolio outflows.

- Turkey remains the most vulnerable…

- …but Central Europe is also at risk of seeing an acceleration

in the pace of outflows from domestic bond markets

31 31

Russia & Ukraine : A primary risk to CEE (II)

CEE: A significant reliance on Russia for

energy

Sources: IMF, UniCredit Research

Diversified trade linkages with Russia

RO

HU

TR

PL

SI

SK

CZ

BG

RS

0

5

10

15

20

25

0 20 40 60 80 100 120

Share of gas supplies from Russia in total consumption

Ga

s im

port

s fro

m R

ussia

(b

n c

ubic

me

tre

s)

UA

LT

LV

EE

RS

PL

TR

SI

SK

CZ HR

RO

HU

BG

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

-5.0 5.0 15.0 25.0 35.0

Imp

ort

s fro

m R

ussia

(%

of to

tal im

port

s)

Exports to Russia (% of total exports)

32 32

Russia : On the brink of recession (I)

▪ GDP growth forecasts have been revised down for 2014-15, but are at risk

of downward revision should sanctions by the West escalate further

(2014F: 0.5% yoy; 2015F: 1.2% yoy).

▪ Macro indicators have worsened…

- IP remains at a standstill while manufacturing PMI is a clear

underperformer across the region (March PMI at 47.8, lowest since

May-09).

- Fixed investments have slowed down and turned negative in January

(-2.2 % yoy).

- Consumer continues to outperform industry, but is experiencing a

slowdown. Retail sales have slowed down, in line with the CBR

measures to slow retail credit.

▪ …while RUB continues to depreciating in a high inflation environment.

- RUB down 9.8% YTD despite strong FX interventions (USD 40bn).

- Inflation remains well above target despite 200bp in rate hikes by the

CBR (March inflation at 6.9% yoy, 2pp above target).

33 33

Russia : On the brink of recession (II)

The RUB remains fundamentally weak

despite strong FX interventions…

Sources: Rosstat, CBR, UniCredit Research

…as the economy continues its

structural slowdown

30

32

34

36

38

40

42

44

Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14

RUBBASK

Bands

No-interventions' zone

46

48

50

52

54

56

58

-10

-5

0

5

10

15

20

Jan-12 Jul-12 Jan-13 Jul-13 Jan-14

IP Investment Manufacturing PMI

34 34

Russia : Financial conditions are deteriorating (I)

▪ Portfolio outflows from Russia are accelerating at a rapid pace, and at risk

dampening growth further.

- Private capital outflows in 1Q14 reached USD 60bn (vs. MinFin FY14

forecast of USD 35bn).

▪ Domestic household deposit conversion of RUB deposits into FX is at risk

of accelerating, in line with historical periods of stress…

▪ …while FX reserve accumulation by the CBR has seen the steepest

reversal within EM since 2008, and has now turned negative in Russia.

▪ Reliance on foreign capital is large at a time where external funding is

turning its back to Russia…

- The economy as a whole is facing USD 166bn of external debt coming

due in the next 24 months.

- Russian corporates remain absent from external markets while facing

USD 130bn of external debt (principal) due before end-1Q15 (o/w

banks USD 50bn, corporates USD 78bn).

35 35

Russia : Financial conditions are deteriorating (II)

FX reserve accumulation: CIS has seen

a larger shift than elsewhere…

Sources: Rosstat, UniCredit Research

…while Russia's C/A surplus is at all-

time lows and capital outflows are

accelerating

-4

-2

0

2

4

6

8

10

12

14

19

90

19

92

19

94

19

96

19

98

20

00

20

02

20

04

20

06

20

08

20

10

20

12

% of GDP

CIS

Developing Asia

MENA

Latam

-20

-15

-10

-5

0

5

10

15

20

-15

-10

-5

0

5

10

15

2005 2006 2007 2008 2009 2010 2011 2012 2013

C/A balance

Domestic bank capital flows

Domestic non-bank capital flows

Net

% of GDP, 4q rolling sum

36 36

Ukraine : Time for change

▪ Economic activity is expected to take a severe hit this year even under a

benign scenario where tensions with Russia do not escalate further.

- GDP contraction in 2014 projected at 6% (vs. MinFin forecast of 3%)

▪ Adherence to an IMF Programme and the EU's DCFTA is also assumed,

but will require advancement on three fronts:

- FX: The IMF has long favoured a flexible currency. YTD depreciation is

a step forward (40% drop YTD), but we expect the IMF to push for

further UAH depreciation to aid adjustment.

- Fiscal policy: Budget deficit to likely to widen to at least 8% of GDP if

the shortfall for Nafto and other arrears are included. Public debt

expected to widen by 20pp to 60% of GDP this year.

- Banking sector: There is a need of a thorough stress test of the

banking system as NPLs are reported in double digits while 1/3 of all

loans are in FX.

▪ Financing needs have increased considerably (funding gap for an IMF deal

estimated at USD 41bn until end-2015), particularly after Gazprom's gas

price hike and request for immediate gas repayments (total cost USD 3bn).

37 37

Ukraine : An exceptionally weak macro backdrop

A weak starting point for activity…

Sources: NBU, National Statistics Office, UniCredit Research

…amidst wide twin deficits

-10.0

-9.0

-8.0

-7.0

-6.0

-5.0

-4.0

-3.0

-2.0

-1.0

0.0

2010 2011 2012 2013

% of GDP

C/A Budget

-20.0

-15.0

-10.0

-5.0

0.0

5.0

10.0

15.0

20.0

2010 2011 2012 2013

Real GDP GFCF IP

yoy (%)

38 38

Ukraine : External financing challenges are significant

FX reserves have fallen to

unmanageably low levels…

Sources: NBU, IMF, Bloomberg, UniCredit Research

…and face further declines ahead

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1.0

2

3

4

5

6

7

8

9

2007 2008 2009 2010 2011 2012 2013

FX reserves/monthly imports - LS

FX reserves/short term externaldebt - RS

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1.8

Apr May Jun Jul Aug Sep Oct Nov Dec

Sovereign obligations(USDbn) - LS

% of foreign reserves(cumulative) - RS

39 39

Topics









40 40

Central Europe: Recovery Underway (I)

▪ Industry and external demand remain central to the improvement in

economic activity

- Momentum captured in manufacturing PMIs (in contrast with other

EM regions)

- IFO export expectations and,

- The European Commission's survey showing strong export orders'

volumes.

▪ The recovery is visibly spilling over into domestic demand and should

continue to do so…

- The drag from a multi-year period of fiscal consolidation is easing

- In some countries the fiscal impulse has turned positive (e.g. HU)

- Below target inflation in many countries helps to boost consumer

purchasing power

- Unemployment has stabilised and in some countries is ticking

downwards

41 41

Central Europe: Recovery Underway (II)

Industry is supporting a recovery in

activity

Sources: National Ministries of Finance, EC, UniCredit Research

Global trade: Recovering to a lower

equilibrium growth rate

-4.0

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

-4.0

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

Jan-06 Jan-08 Jan-10 Jan-12 Jan-14

Germany China CE3

no. of stdevs from avg

-40.0

-30.0

-20.0

-10.0

0.0

10.0

20.0

30.0

40.0

50.0

Jan-06

Oct-06

Jul-07

Apr-08

Jan-09

Oct-09

Jul-10

Apr-11

Jan-12

Oct-12

Jul-13

% yoy

Global trade EMU

42 42

Hungary: Good growth momentum, public finance under pressure

Government expenditure is up again to

offset weak private investment…

Sources: NBH, MinFIn, UniCredit Research

…but the soveriegn faces sizeable

redemptions in 2014 and 2015

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15

T-bills Other FX Loans

REPHUNs HUF Loans HGBs

EUR bn

19

20

21

22

23

24

45

47

49

51

53

55

1Q07 4Q07 3Q08 2Q09 1Q10 4Q10 3Q11 2Q12 1Q13

General governmentexpenditure

Public consumption - rs

% of GDP, SA

43 43

Hungary: Private sector deleveraging continues

Bank outflows continue amid a

contraction of credit…

Sources: NBH, MinFin, MinFin, UniCredit Research

…but EU funds are keeping C/A

funding manageable

-10

-5

0

5

10

15

-400

-300

-200

-100

0

100

200

300

400

Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14

Corporate loans - new production (FXadjusted, HUF bn)

Consumer loans - new production (FXadjusted, HUF bn)

Foreign liabilities of the banking system(EUR bn yoy- RS)

-15

-10

-5

0

5

10

15

20

2011 2012 2013F 2014F 2015F

Change of FX reserves (- = rise)

EU funds

C/A

Other investment

Portfolio investment

FDI

EUR bn

44 44

Romania: GDP growth – looking for a broader base

GDP growth without agriculture could

accelerate to 2.7% yoy in 2014 and 2.8%

yoy in 2015 from 2.4% yoy in 2013

Sources: BNR, INS, Eurostat, UniCredit Research

No underlying growth for domestic

demand outside public spending and

exports

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0

Dec-10 Sep-11 Jun-12 Mar-13 Dec-13 Sep-14 Jun-15

GDP growth

GDP growth without agriculture

% yoy

-30.0

-25.0

-20.0

-15.0

-10.0

-5.0

0.0

5.0

10.0

15.0

20.0

Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14

Industrial production

Constructions

Retail

% yoy, 3M-MA

45 45

Romania: Past imbalances have been addressed

EU fund inflows accelerate, reducing the

reliance on portfolio investment

Sources: BNR, INS, Eurostat, UniCredit Research

The budget deficit is well below 3% of

GDP

-15

-10

-5

0

5

10

15

20

25

30

35

Feb-06 Feb-08 Feb-10 Feb-12 Feb-14

EUR bn, 12M

FDI Portfolio investment

Finacial derivatives IMF

Other (mainly banks) FX reserves

EU funds & transfers C/A deficit

-8.0

-7.0

-6.0

-5.0

-4.0

-3.0

-2.0

-1.0

0.0

1.0

Ja

n

Feb

Ma

r

Apr

Ma

y

Ju

n

Ju

l

Aug

Sep

Oct

Nov

Dec

2009 2010 2011 2012 2013 2014

% of GDP

46 46

Slovakia: Domestic demand weak, growth driven by external

demand

GDP driven by net exports, while domestic

demand lagging behind

Sources: Statistical Office SR, UniCredit Research

Export-oriented manufacturing only

underlying growth driver in economy

90

95

100

105

110

115

Ma

r-1

1

Jun-1

1

Sep-1

1

De

c-1

1

Ma

r-1

2

Jun-1

2

Sep-1

2

De

c-1

2

Ma

r-1

3

Jun-1

3

Sep-1

3

De

c-1

3

Ma

r-1

4

Jun-1

4

Sep-1

4

De

c-1

4

Ma

r-1

5

Jun-1

5

Sep-1

5

De

c-1

5

GDP Domestic demand

2008 = 100 (SA)

-20.0

-15.0

-10.0

-5.0

0.0

5.0

10.0

15.0

20.0

25.0

30.0

Jan-1

1

Ma

r-1

1

Ma

y-1

1

Jul-1

1

Sep-1

1

No

v-1

1

Jan-1

2

Ma

r-1

2

Ma

y-1

2

Jul-1

2

Sep-1

2

No

v-1

2

Jan-1

3

Ma

r-1

3

Ma

y-1

3

Jul-1

3

Sep-1

3

No

v-1

3

Jan-1

4

Export-oriented manufacturing

Other manufacturing

Construction

Retail sales

% yoy

47 47

Slovakia: Public debt on rise, fiscal tightening to continue

Primary deficit has narrowed and already

touched pre-crises levels, but remains 4th

largest in the CEE region

Sources: Statistical Office SR, UniCredit Research

Low industrial confidence and fiscal

tightening responsible for investment

drop.

-7.0

-6.0

-5.0

-4.0

-3.0

-2.0

-1.0

0.0

2007 2008 2009 2010 2011 2012 2013

% GDP

70

80

90

100

110

120

130

140

Ma

r-0

5

Sep-0

5

Ma

r-0

6

Sep-0

6

Ma

r-0

7

Sep-0

7

Ma

r-0

8

Sep-0

8

Ma

r-0

9

Sep-0

9

Ma

r-1

0

Sep-1

0

Ma

r-1

1

Sep-1

1

Ma

r-1

2

Sep-1

2

Ma

r-1

3

Sep-1

3

Fixed investments

Public

Private

2008 = 100 (SA)

48 48

Topics









49 49

The Balkans: More work to be done (I)

▪ Growth within the Balkans continues to lag Central Europe

- Croatia and Slovenia fail to show GDP gains.

- In Bulgaria and Serbia momentum is improving, but growth below 2%

this year (Central Europe: 2.5%).

▪ With the exception of Bulgaria, there is a strong need for fiscal consolidation

- Serbia's public debt has doubled since 2008, while this year's budget

deficit is set to remain at 7% of GDP. IMF deal remains crucial.

- Croatia has entered EDP, forcing authorities to pass fiscal consolidation

but these measures were largely revenue-based.

- Banking sector recaps in Slovenia have soared public debt, while

suspension of the real state tax risks augmenting the deficit further.

▪ Besides the high level of public expenditure, employment levels are at region

lows.

- Bosnia & Herzegovina ≈10%; Croatia and Bulgaria ≈30%

50 50

The Balkans: More work to be done (II)

The labour market: An obvious source of

much needed structural growth

Sources: National Ministries of Finance, UniCredit Research

Serbia: Public sector crowds out

private sector

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0

50.0

B&

H

Ro

man

ia

Serb

ia

Cro

atia

Bulg

aria

Hu

nga

ry

Pola

nd

Slo

vakia

Lithu

ania

La

tvia

Slo

ven

ia

Esto

nia

Czech

% of population

-25.0

-20.0

-15.0

-10.0

-5.0

0.0

5.0

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

% of GDP

Private sector Public sector C/A deficit

51 51

Slovenia: Economic activity is slowly catching-up

Domestic demand is showing signs of

recovery …

Sources: MinFIn, NBS, UniCredit Research

… on the back of improving consumer

confidence and private consumption

-15.0

-10.0

-5.0

0.0

5.0

10.0

15.0

2001 2003 2005 2007 2009 2011 2013

% yoy

GDP

Domestic demand

-10

-5

0

5

10

15

-45

-40

-35

-30

-25

-20

-15

-10

-5

0

2005 2006 2007 2008 2009 2010 2011 2012 2013

Consumer Confidence (SA, LS)

Private consumption, RS

index % yoy

52 52

Slovenia: External imbalances are not severe

Strong portfolio flows are keeping C/A

funding manageable

Sources: MinFin, NBS, UniCredit Research

…while Slovenia's negative IIP trend is

reverting

-3

-2

-1

0

1

2

3

20

09

20

10

20

11

20

12

20

13

EURbn

E&O Other invest

Portfolio FDI

C/A Balance

-150

-100

-50

0

50

100

150

-150

-100

-50

0

50

100

150

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

Other liab. Portfolio liab

Direct liab Other assets

Portfolio assets Direct assets

Net IIP (rhs)

% of GDP

53 53

Slovenia: Public finances are in need of strong consolidation

Recapitalisations to domestic banks behind

the large budget deficit increase…

Sources: EC, MinFIn, UniCredit Research

…and the strong deterioration in public

debt metrics

0

2

4

6

8

10

12

14

16

0

5

10

15

20

25

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13F

20

14F

20

15F

Revenues (EUR bn), LS

Expenditures (EUR bn), LS

Budget Deficit (% of GDP), RS

EUR bn % of GDP

0

20

40

60

80

100

120

140

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14F

20

15F

Spain Ireland

Portugal Germany

Slovenia avg. CEE*

% of GDP

*Excludes CIS and Baltics

54 54

Serbia: GDP growth constrained by weak private demand

Manufacturing and agriculture are

supporting GDP growth…

Sources: NBS, MinFIn, UniCredit Research

… but weak private consumption

continues to drag domestic demand

-8.0

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

1Q

09

3Q

09

1Q

10

3Q

10

1Q

11

3Q

11

1Q

12

3Q

12

1Q

13

3Q

13

Agriculture Other

Taxes Transport&comunication

Wholesale & retail trade Construction

Manufacturing GDP

% yoy

-10.0

-5.0

0.0

5.0

10.0

15.0

-10.0

-5.0

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

1Q

07

3Q

07

1Q

08

3Q

08

1Q

09

3Q

09

1Q

10

3Q

10

1Q

11

3Q

11

1Q

12

3Q

12

1Q

13

3Q

13

Net Earnings - LS

Private consumption - RS

% yoy

55 55

Serbia: A tougher stance on fiscal consolidation is needed

The sovereign has heavily increased its

reliance on foreign funding

Sources: NBS, MinFIn, Moody's Investors Service, UniCredit Research

Public debt dynamics compare poorly

to B-rated peers

0

10

20

30

40

50

60

70

80

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014F

Contingent Liabilities

External Debt

Domestic Debt

% of GDP

20

30

40

50

60

70

80

2003 2005 2007 2009 2011 2013F

Serbia (B1) Median (B1 to C) Mean (B1 to C)

% of GDP

56 56

Serbia: Accelerating capital outflows are a risk to Serbia

C/A funding remains too dependant on

portfolio capital…

Sources: NBS, MinFIn, UniCredit Research

…which remains highly volatile

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

1Q

09

2Q

09

3Q

09

4Q

09

1Q

10

2Q

10

3Q

10

4Q

10

1Q

11

2Q

11

3Q

11

4Q

11

1Q

12

2Q

12

3Q

12

4Q

12

1Q

13

2Q

13

3Q

13

4Q

13

E&O Other invest

Portfolio FDI

C/A deficit

EUR bn

-20

0

20

40

60

80

100

120

140

160

-2

0

2

4

6

8

10

12

Jan-09 Jan-10 Jan-11 Jan-12 Jan-13

Portfolio flows (% of GDP, 12M sum - LS)

Portfolio flows (% C/A deficit 12M sum - RS)

57 57

Croatia: Fiscal imbalances – activated Excessive Deficit Procedure

creating a framework for reforms

Fiscal gap opened with recession as a

drag for economic recovery…

Sources: IMF, MinFIn, Eurostat,UniCredit Research

… with public sector creating large

demand for financing.

-9.0

-8.0

-7.0

-6.0

-5.0

-4.0

-3.0

-2.0

-1.0

0.0

1.0

2.0

2004 2006 2008 2010 2012 2014F

GGD

GGPD

EDP recommendation

-10.0

-5.0

0.0

5.0

10.0

15.0

20.0

25.0

30.0

0

10

20

30

40

50

60

70

80

2004 2006 2008 2010 2012 2014F

Public debt (% GDP), LS

Public debt (% yoy), RS

58 58

Croatia: Growth outlook remains gloomy, restoring investment

climate becomes a challenge

Recession extended to sixth year helped

external adjustments...

Sources: IMF, MinFIn, Eurostat,UniCredit Research

...but, without reform incentives,

attracting FDI remains difficult, while

EU funds absorbtion is weak.

-20.0

-15.0

-10.0

-5.0

0.0

5.0

10.0

15.0

2004 2006 2008 2010 2012 2014F

Imports

Exports

Inventory Investmentl

Public Consumption

Fixed Investment

NPISH Consmuption

Private Consumption

GDP growth

% yoy

-10

-8

-6

-4

-2

0

2

4

6

8

10

20

04Q

1

20

04Q

3

20

05Q

1

20

05Q

3

20

06Q

1

20

06Q

3

20

07Q

1

20

07Q

3

20

08Q

1

20

08Q

3

20

09Q

1

20

09Q

3

20

10Q

1

20

10Q

3

20

11Q

1

20

11Q

3

20

12Q

1

20

12Q

3

20

13Q

1

20

13Q

3

BoP/BDPcumulative

FDI/BDPcumulative

%

59 59

Bulgaria: So far GDP growth has been over reliant on export and

improving EU funds absorption

But domestic demand recovery has been

weak and uneven…

Sources: Eurostat, NSI, UniCredit Research

EU funds absorption has seen tangible

improvement over the last several years

-20.0

-15.0

-10.0

-5.0

0.0

5.0

10.0

15.0

2004 2006 2008 2010 2012 2014F 2016F

% yoy

Net Export

Fixed Investments

Public consumption

Private consumption

GDP, real growth

0%

10%

20%

30%

40%

50%

60%

70%

80%

Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15

% of total Programme budgetPAID (31.03.2014)

% of total Programme budget paid(31.03.2013)

Linear (% of total Programmebudget PAID (31.03.2014))

Linear (% of total Programmebudget paid (31.03.2013))

59.9%

37.1%

74.4%

62.1%

60 60

Bulgaria: External position has seen marked improvement

Large current account imbalances have

been successfully addressed…


…but high foreign debt in the private

corporate sector suggests deleveraging

is not over

-6.4

-11.6

-17.6

-25.2

-23.1

-8.9

-1.5 0.1

-0.8

1.9 0.8

-0.4 -1.9

-35

-25

-15

-5

5

15

25

2004 2006 2008 2010 2012 2014F 2016F

Current transfers balance

Income Balance

Services Balance

Trade Balance

C/A balance

% of GDP

0

20

40

60

80

100

120

140

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

2004 2006 2008 2010 2012 2014F 2016F

(in %

of

GD

P)

(in E

UR

mill

ion)

Banking Sector, LS

Public Sector, LS

Private Sector, LS

Gros external debt (% GDP), RS

61 61

Bulgaria: Solid fiscal fundamentals have been a key source of

strength

Low public debt justifies a temporarily

increase in public sector investments


The financing cost for the government

has stabilized at supportive levels

-10

-5

0

5

10

15

20

25

30

35

-20

-10

0

10

20

30

40

50

60

70

2004 2006 2008 2010 2012 2014F 2016F

% of GDP

Public Internal Debt, LS

Public External Debt, LS

Budget Balance, cash basis, RS

0

50

100

150

200

250

300

350

400

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

2003 2005 2007 2009 2011 2013

Harmonised long-terminterest rates (%), LS

5Y CDS premia (bp), RS

% bp

62

Contact

UniCredit Economics, FI/FX & Commodities Research

Carlos Ortiz, Economist

+44 20 7826-1228

[email protected]

Corporate & Investment Banking

UniCredit Bank AG, London Branch

Moor House

120 London Wall

UK-EC2Y 5ET London

63

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officers or employees nor any other person accepts any liability whatsoever (in negligence or otherwise) for any loss howsoever arising from any use of this document or its contents or otherwise arising in connection therewith.

This analysis is being distributed by electronic and ordinary mail to professional investors, who are expected to make their own investment decisions without undue reliance on this publication, and may not be redistributed, reproduced or

published in whole or in part for any purpose.

Responsibility for the content of this publication lies with:

a) UniCredit Bank AG (UniCredit Bank), Am Tucherpark 16, 80538 Munich, Germany, (also responsible for the distribution pursuant to §34b WpHG). The company belongs to

UniCredit Group. Regulatory authority: “BaFin“ – Bundesanstalt für Finanzdienstleistungsaufsicht, Lurgiallee 12, 60439 Frankfurt, Germany.

b) UniCredit Bank AG London Branch (UniCredit Bank London), Moor House, 120 London Wall, London EC2Y 5ET, United Kingdom.

Regulatory authority: “BaFin“ – Bundesanstalt für Finanzdienstleistungsaufsicht, Lurgiallee 12, 60439 Frankfurt, Germany and subject to limited regulation by the Financial Conduct Authority, 25 The North Colonnade, Canary Wharf, London

E14 5HS, United Kingdom and Prudential Regulation Authority 20 Moorgate, London, EC2R 6DA, United Kingdom. Further details regarding our regulatory status are available on request.

c) UniCredit Bank AG Milan Branch (UniCredit Bank Milan), Piazza Gae Aulenti, 4 - Torre C, 20154 Milan, Italy, duly authorized by the Bank of Italy to provide investment services.

Regulatory authority: “Bank of Italy”, Via Nazionale 91, 00184 Roma, Italy and Bundesanstalt für Finanzdienstleistungsaufsich t, Lurgiallee 12, 60439 Frankfurt, Germany.

d) UniCredit Bulbank, Sveta Nedelya Sq. 7, BG-1000 Sofia, Bulgaria

Regulatory authority: Financial Supervision Commission (FSC), 33 Shar Planina str.,1303 Sofia, Bulgaria

e) Zagrebačka banka d.d., Trg bana Jelačića 10, HR-10000 Zagreb, Croatia

Regulatory authority: Croatian Agency for Supervision of Financial Services, Miramarska 24B, 10000 Zagreb, Croatia

f) UniCredit Bank Czech Republic (UniCredit Bank Czechia), Na Príkope 858/20, CZ-11121 Prague, Czech Republic

Regulatory authority: CNB Czech National Bank, Na Příkopě 28, 115 03 Praha 1, Czech Republic

g) Bank Pekao, ul. Grzybowska 53/57, PL-00-950 Warsaw, Poland

Regulatory authority: Polish Financial Supervision Authority, Plac Powstańców Warszawy 1, 00-950 Warsaw, Poland

h) ZAO UniCredit Bank Russia (UniCredit Russia), Prechistenskaya emb. 9, RF-19034 Moscow, Russia

Regulatory authority: Federal Service on Financial Markets, 9 Leninsky prospekt, Moscow 119991, Russia

i) UniCredit Bank Slovakia a.s. (UniCredit Slovakia), Šancova 1/A, SK-813 33 Bratislava, Slovakia

Regulatory authority: National Bank of Slovakia, Imricha Karvaša 1, 813 25 Bratislava, Slovakia

j) UniCredit Tiriac Bank (UniCredit Tiriac), Bucharest 1F Expozitiei Boulevard, RO-012101 Bucharest 1, Romania

Regulatory authority: National Bank of Romania, 25 Lipscani Street, RO-030031, 3rd District, Bucharest, Romania

65


POTENTIAL CONFLICTS OF INTEREST

UniCredit Bank AG acts as a Specialist or Primary Dealer in government bonds issued by the Italian, Portuguese and Greek Treasury. Main tasks of the Specialist are to participate with continuity and efficiency to the governments' securities

auctions, to contribute to the efficiency of the secondary market through market making activity and quoting requirements and to contribute to the management of public debt and to the debt issuance policy choices, also through advisory and

research activities.

ANALYST DECLARATION

The author’s remuneration has not been, and will not be, geared to the recommendations or views expressed in this study, neither directly nor indirectly.

ORGANIZATIONAL AND ADMINISTRATIVE ARRANGEMENTS TO AVOID AND PREVENT CONFLICTS OF INTEREST

To prevent or remedy conflicts of interest, UniCredit Bank, UniCredit Bank London, UniCredit Bank Milan, UniCredit Bulbank, Zagrebačka banka, UniCredit Bank Czechia, Bank Pekao, UniCredit Russia, UniCredit Slovakia and UniCredit

Tiriac have established the organizational arrangements required from a legal and supervisory aspect, adherence to which is monitored by its compliance department. Conflicts of interest arising are managed by legal and physical and non-

physical barriers (collectively referred to as “Chinese Walls”) designed to restrict the flow of information between one area /department of UniCredit Bank, UniCredit Bank London, UniCredit Bank Milan, UniCredit Bulbank, Zagrebačka banka,

UniCredit Bank Czechia, Bank Pekao, UniCredit Russia, UniCredit Slovakia, UniCredit Tiriac and another. In particular, Investment Banking units, including corporate finance, capital market activities, financial advisory and other capital raising

activities, are segregated by physical and non-physical boundaries from Markets Units, as well as the research department.In the case of equities execution by UniCredit Bank AG Milan Branch, other than as a matter of client facilitation or

delta hedging of OTC and listed derivative positions, there is no proprietary trading. Disclosure of publicly available confl icts of interest and other material interests is made in the research. Analysts are supervised and managed on a day-to-

day basis by line managers who do not have responsibility for Investment Banking activities, including corporate finance activities, or other activities other than the sale of securities to clients.

ADDITIONAL REQUIRED DISCLOSURES UNDER THE LAWS AND REGULATIONS OF JURISDICTIONS INDICATED

Notice to Australian investors

This publication is intended for wholesale clients in Australia subject to the following:

UniCredit Bank AG and its branches do not hold an Australian Financial Services licence but are exempt from the requirement to hold a licence under the Act in respect of the financial services to wholesale clients. UniCredit Bank AG and its

branches are regulated by BaFin under German laws, which differ from Australian laws. This document is only for distribution to wholesale clients as defined in Section 761G of the Corporations Act. UniCredit Bank AG and its branches are

not Authorised Deposit Taking Institutions under the Banking Act 1959 and are not authorised to conduct a banking business in Australia.

Notice to Austrian investors

This document does not constitute or form part of any offer for sale or subscription of or solicitation of any offer to buy or subscribe for any securities and neither this document nor any part of it shall form the basis of, or be relied on in

connection with or act as an inducement to enter into, any contract or commitment whatsoever.

This document is confidential and is being supplied to you solely for your information and may not be reproduced, redistributed or passed on to any other person or published, in whole or part, for any purpose.

Notice to Czech investors

This report is intended for clients of UniCredit Bank, UniCredit Bank London, UniCredit Bank Milan, UniCredit Bulbank, Zagrebačka banka, UniCredit Bank Czechia, Bank Pekao, UniCredit Russia, UniCredit Slovakia, UniCredit Tiriac in the

Czech Republic and may not be used or relied upon by any other person for any purpose.

Notice to Italian investors

This document is not for distribution to retail clients as defined in article 26, paragraph 1(e) of Regulation n. 16190 approved by CONSOB on October 29, 2007.

In the case of a short note, we invite the investors to read the related company report that can be found on UniCredit Research website www.research.unicreditgroup.eu.

Notice to Japanese investors

This document does not constitute or form part of any offer for sale or subscription for or solicitation of any offer to buy or subscribe for any securities and neither this document nor any part of it shall form the basis of, or be relied on in

connection with or act as an inducement to enter into, any contract or commitment whatsoever.

Notice to Polish investors

This document is intended solely for professional clients as defined in Art. 3 39b of the Trading in Financial Instruments Act of 29 July 2005.The publisher and distributor of the recommendation certifies that it has acted with due care and

diligence in preparing the recommendation, however, assumes no liability for its completeness and accuracy.

Notice to Russian investors

As far as we are aware, not all of the financial instruments referred to in this analysis have been registered under the federal law of the Russian Federation "On the Securities Market" dated 22 April 1996, as amended (the "Law"), and are not

being offered, sold, delivered or advertised in the Russian Federation. This analysis is intended for qualified investors, as defined by the Law, and shall not be distributed or disseminated to a general public and to any person, who is not a

qualified investor.

66


Notice to Turkish investors

Investment information, comments and recommendations stated herein are not within the scope of investment advisory activities. Investment advisory services are provided in accordance with a contract of engagement on investment advisory

services concluded with brokerage houses, portfolio management companies, non-deposit banks and the clients. Comments and recommendations stated herein rely on the individual opinions of the ones providing these comments and

recommendations. These opinions may not suit your financial status, risk and return preferences. For this reason, to make an investment decision by relying solely on the information stated here may not result in consequences that meet your

expectations.

Notice to UK investors

This communication is directed only at clients of UniCredit Bank, UniCredit Bank London, UniCredit Bank Milan, UniCredit Bulbank, Zagrebačka banka, UniCredit Bank Czechia, Bank Pekao, UniCredit Russia, UniCredit Slovakia, or UniCredit

Tiriac who (i) have professional experience in matters relating to investments or (ii) are persons falling within Article 49(2)(a) to (d) (“high net worth companies, unincorporated associations, etc.”) of the United Kingdom Financial Services and

Markets Act 2000 (Financial Promotion) Order 2005 or (iii) to whom it may otherwise lawfully be communicated (all such persons together being referred to as “relevant persons”). This communication must not be acted on or relied on by

persons who are not relevant persons. Any investment or investment activity to which this communication relates is available only to relevant persons and will be engaged in only with relevant persons.

Notice to U.S. investors

This report is being furnished to U.S. recipients in reliance on Rule 15a-6 ("Rule 15a-6") under the U.S. Securities Exchange Act of 1934, as amended. Each U.S. recipient of this report represents and agrees, by virtue of its acceptance

thereof, that it is such a "major U.S. institutional investor" (as such term is defined in Rule 15a-6) and that it understands the risks involved in executing transactions in such securities. Any U.S. recipient of this report that wishes to discuss or

receive additional information regarding any security or issuer mentioned herein, or engage in any transaction to purchase or sell or solicit or offer the purchase or sale of such securities, should contact a registered representative of UniCredit

Capital Markets, LLC.

Any transaction by U.S. persons (other than a registered U.S. broker-dealer or bank acting in a broker-dealer capacity) must be effected with or through UniCredit Capital Markets.

The securities referred to in this report may not be registered under the U.S. Securities Act of 1933, as amended, and the issuer of such securities may not be subject to U.S. reporting and/or other requirements. Available information

regarding the issuers of such securities may be limited, and such issuers may not be subject to the same auditing and reporting standards as U.S. issuers.

The information contained in this report is intended solely for certain "major U.S. institutional investors" and may not be used or relied upon by any other person for any purpose. Such information is provided for informational purposes only

and does not constitute a solicitation to buy or an offer to sell any securities under the Securities Act of 1933, as amended, or under any other U.S. federal or state securities laws, rules or regulations. The investment opportunities discussed

in this report may be unsuitable for certain investors depending on their specific investment objectives, risk tolerance and financial position. In jurisdictions where UniCredit Capital Markets is not registered or licensed to trade in securities,

commodities or other financial products, transactions may be executed only in accordance with applicable law and legislation, which may vary from jurisdiction to jurisdiction and which may require that a transaction be made in accordance

with applicable exemptions from registration or licensing requirements.

The information in this publication is based on carefully selected sources believed to be reliable, but UniCredit Capital Markets does not make any representation with respect to its completeness or accuracy. All opinions expressed herein

reflect the author’s judgment at the original time of publication, without regard to the date on which you may receive such information, and are subject to change without notice.

UniCredit Capital Markets may have issued other reports that are inconsistent with, and reach different conclusions from, the information presented in this report. These publications reflect the different assumptions, views and analytical

methods of the analysts who prepared them. Past performance should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or implied, is provided in relation to future performance.

UniCredit Capital Markets and any company affiliated with it may, with respect to any securities discussed herein: (a) take a long or short position and buy or sell such securities; (b) act as investment and/or commercial bankers for issuers of

such securities; (c) act as market makers for such securities; (d) serve on the board of any issuer of such securities; and (e) act as paid consultant or advisor to any issuer.

The information contained herein may include forward-looking statements within the meaning of U.S. federal securities laws that are subject to risks and uncertainties. Factors that could cause a company’s actual results and financial

condition to differ from expectations include, without limitation: political uncertainty, changes in general economic conditions that adversely affect the level of demand for the company’s products or services, changes in foreign exchange

markets, changes in international and domestic financial markets and in the competitive environment, and other factors relating to the foregoing. All forward-looking statements contained in this report are qualified in their entirety by this

cautionary statement

This document may not be distributed in Canada.

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