Abstract
In light of an array of recent data releases and the downward revision of our
eurozone growth forecast, we
have revised down our Czech GDP growth
forecast for 2009. We now expect the economy to contract by
2.1% in real
terms this year, with a recovery to only mediocre growth of 1.2% expected in
2010, as
reduced external demand, slowing capital inflows and weak
domestic consumption all weigh on overall
GDP. That said, we stress that
while the economy will suffer negative growth, the risks of a broader
systemic financial sector crisis are relatively muted.
One key factor
weighing on the Czech economy until well into 2010 will be the weakness of
external
demand. As an economy where gross exports are expected to be
equivalent to 85.1% of GDP in 2008, the
reining in of consumption in major
trading partners (especially consumption of high-value manufactured
goods,
such as Czech cars), will be particularly problematic. We expect the eurozone
to contract by 2.5%
in 2009, with the most important single Czech export
destination - Germany - already entering technical
recession in Q308.
Moreover, all top 10 Czech export destinations - comprising 75.3% of exports
as of
2007 - are expected to be in recession in 2009, which will produce a
sharp contraction in demand for
Czech goods.
We expect government
expenditure to remain elevated in 2009, and we forecast spending growth of
5.0%. Partly, this is reflective of the inevitable pressures of the unfolding
recession. As more Czechs lose
jobs, assets and wealth, they will fall
back on the safety net provided by the state. This will lead to rising
government outlays on income support, unemployment benefits, and associated
social costs (e.g.
healthcare).
While the core outlook for the Czech
economy is recessionary, we reiterate our long-held view that the
Czech
Republic is one of the countries best-placed to weather the ongoing economic
storm. We see the
current account deficit falling to a manageable 2.9% of
GDP this year and also forecast external debt to
total only 42.6% of GDP,
minimising the risks associated with high external asymmetries. Moreover,
while we highlighted above that there has certainly been a degree of leverage
growth over the last five
years, we stress that - given the
still-favourable loans-to-deposits ratio in play - this does not pose a
significant risk to macroeconomic stability. As such, we believe that Czechs
will only face the economic
pain of a ' conventional' recession, caused by
weak domestic and external demand, rather than a protracted
deleveraging
process and the accompanying systemic financial sector crisis risks.
In
Central and Eastern Europe (CEE), we profile 22 multinational insurance
companies. In alphabetical
order, these are AEGON, AIG, Allianz, Aviva,
AXA, Cardif, ERGO, Eureko, Fortis, Generali,
GRAWE, Groupama, HDI-Gerling,
HSBC Insurance, ING, MetLife, Prudential Financial, QBE,
RSA, UNIQA,
Vienna Insurance Group and Zurich Financial Services.
We also discuss the
regional presence of Belgium' s KBC and Austria' s Erste Bank through a number
of
insurance subsidiaries and explain the importance, for each of the
various countries, of purely domestic
firms.
Over the course of 2008,
actual total premiums in the Czech Republic rose by 8% to CZK143,129mn.
Non-life premiums rose by 4% to CZK80,988mn, while life premiums rose by 14%
to CZK62,141mn.
Between now and the end of the forecast period, we expect
that annual non-life premiums will rise by
CZK19,970mn, while annual life
premiums should rise by CZK10,323mn.
Growth in non-life premiums should be
driven by the general growth in nominal GDP: we are assuming
that non-life
penetration increases from the current level of around 1.9% to 2.4%.
Growth in life premiums should be driven by the change in the overall
population and a rise in life density
from US$292.08 to US$420 per
capita.
BMI' s Insurance Business Environment Rating is 61.5.
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