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The economy in Central and Eastern Europe (CEE-11) grew at an estimated 6.2 % in 2006 compared with the previous year, despite strong import growth. This was more than twice the growth rate of the euro area. The upturn was evenly balanced, driven by strong demand for exports – particularly in the case of the EU member states, which are now more strongly integrated in the supra-regional division of labour –, buoyant investment activity and robust consumer demand. In Bulgaria and Romania, the pre-EU accession phase was characterised by high inflows of direct investment.
Stronger inflationary pressure and the modest success achieved in reducing budget deficits induced CEE countries to tighten their expansionary monetary policy by the third quarter. While this led to a renewed rise in interest rates in CEE, the level of interest rate convergence was more or less maintained. In Hungary, the struggle to restore the budget to balance impeded economic growth. In an effort to defend the exchange rate, the central bank raised its 2-week deposit rate from 6.00 % to 8.00 %.
The structural catching-up process in the banking sector continued in 2006 and was reflected in a strong expansion of loans and deposits, building on the CEE countries’ stronger (real and nominal) economic growth. Based on preliminary estimates, the volume of loans denominated in local currency grew by around 20 % in Poland and by 50 % in Romania, while deposits expanded by 15 % and 30 %, respectively. Loans and deposits are also experiencing very strong growth in Russia and Turkey, with lending volume increasing by some 50 %. Deposits grew at a slightly slower, but nonetheless impressive rate of almost 40 % and not quite 30 %, respectively.
Most CEE currencies again offset the temporary weakness seen in May/June. In terms of the average rate used for translating the income statement of our subsidiaries in CEE, currencies appreciated in the Czech Republic (+ 5.3 %), Slovakia (+ 3.6 %), Romania (+ 3.5 %) and Poland (+ 3.4 %). Only the Hungarian forint weakened against the euro (– 6.0 %).