High quality public institutions generate prosperity

Erste Bank Research Team Erste Bank

On the radar

Czechia’s posted a surplus on the current account of CZK 18.5billion in August. Poland on the other hand had current account deficit of PLN -2827 million in August. In Romania, year-to-date current account position is at RON -17858 million.
Inflation rate in Slovakia landed at 2.6% in August according to local methodology.
Final inflation number will be released at 10 AM CET in Poland.

Economic developments

The Nobel prize laureates in the economic sciences are Daron Acemoglu, Simon Johnson and James Robinson. They have demonstrated the importance of societal institutions for a country’s prosperity. Societies with a poor rule of law and institutions that exploit the population do not generate growth or change for the better, reads the official statement of The Royal Swedish Academy of Sciences. In particular, they argue that inclusive governments (that extend political liberties and property rights as broadly as possible) experience the greatest growth in the long run. By contrast, countries with extractive governments (where power is wielded by a small elite) either fail to generate broad-based growth or see their growth wither away after short bursts of economic expansion. Today we look at the Worldwide Governance Indicators (WGI) that are designed to help assess broad patterns in perceptions of governance across countries and over time. The Rule of Law indicator shows a visible improvement in Serbia and Czechia over last two decades. Despite the improvement, Serbia remains the lowest rated country within the region. Other CEE countries have sustained their positions with Hungary being the stark exception, where rule of law assessment deteriorated quite visibly to 63 and pairs with Romania. Western economies such as Netherlands, Finland or Switzerland, that may serve as a reference point, have their scores between 90 and 100.

Market developments

The Czech koruna and the Hungarian forint strengthened slightly against the euro on Monday. EURPLN holds at 4.29. The long term yields showed mixed performance. In Romania, Treasury Chief Nanu said that Romania will have high borrowing needs in 2025 as it struggles with very high budget deficit despite plans for fiscal consolidation as of next year. Romania remain open for foreign issuance including Samurai bonds.

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Erste Bank Research Team

Erste Bank

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