* Zloty seen firming 5-6 pct in next 12 months
* Crown seen extending gains in 2011, leu to rebound
* Forint to underperform, though seen firming 2.5 pct
By Sandor Peto
BUDAPEST, Dec 2 (Reuters) - Economic recovery will lift
currencies in the European Union's east in 2011 but the past few
weeks' falls can resume any time if the euro zone debt crisis
escalates, analysts in a monthly Reuters poll said.
The Nov. 29-Dec. 1 poll which had 37 respondents projected
that the Polish zloty <EURPLN=> would firm 5.5 percent from its
Wednesday close to 3.8 against the euro in the next 12 months,
adding to its 2.5 percent gain posted so far this year.
The Czech crown <EURCZK=>, the region's top performer in
2010 with gains over 5 percent, is expected to strengthen
further by 3.2 percent to 24.2. The Romanian leu <EURRON=> is
also seen firming 3.2 percent to 4.16 after shedding more than
one percent this year.
But a projected 2.5 percent rise of Hungary's forint
<EURHUF=> would offset only part of the 3 percent loss suffered
in 2010 amid concerns about how Budapest is dealing with its
budget deficit.
The units are all expected to firm in the next few weeks
except for the forint, which is seen closing the year broadly
unchanged from Wednesday's closing level.
The currencies underperformed forecasts this year as
investors' hunger for yield soured over the Greek debt crisis in
the summer and Ireland's woes in the past weeks.
Fears that Portugal and Spain may also fall prey to the
crisis weigh on the outlook of the EU's emerging markets.
But analysts have so far maintained their forecasts for a
firming of their currencies, putting an expected economic
recovery and monetary tightening in the region in the balance.
EYES SHARPENED TO FISCAL RISKS
The recovery has made a strong start in Poland and the Czech
Republic, though it remains sluggish in Hungary.
Romania which is carrying out fiscal austerity measures is
still in recession but its debt is well below that of Hungary
whose government has often confounded markets in the past months
with unorthodox economic policy measures.
The median 12-month forecasts improved to 24.20 per euro for
the Czech crown from 24.25 in a poll a month ago, to 4.16 from
4.19 for the Romanian leu, remained flat at 3.8 for the zloty,
but Hungary's forint is seen weaker at 272.50 than the previous
forecast of 270.
Hungary is expected to cut its budget deficit to one of the
lowest levels in the EU, below 3 percent of GDP next year.
But investors remain concerned over its medium-term fiscal
sustainability and debt ratings as one-off measures reduce the
budget gap, including special taxes on big firms and a plan to
spend savings to be taken over by the state from pension funds.
"There is a big hole in the budget looking ahead to
2013-2014," said Zsolt Kondrat of MKB Bank. "The government will
need to do something and I expect that they will do something...
there will be some kind of a reform, spending cuts."
Early this week Hungary's central bank became the first in
the region since the 2008 global crisis to increase interest
rates, but a central bank law amendment to put government
appointees in the rate-setting body has triggered concerns.
Poland may be the first to follow Hungary's rate increase.
The zloty's prospects are also brightened by the country's
robust growth, privatisation revenue inflows and the possible
conversion of funds from the EU in the zloty market.
But even analysts' favourite, the zloty, is vulnerable to
sentiment shifts over the euro zone crisis, which has made
investors more sensitive to any fiscal weakness in Europe.
"Poland, despite its growth, has one of the largest deficits
in CEE (Central Europe)," Nomura said in a note dated Dec. 1.
"Although investors still hope fiscal consolidation will
take place after next October's elections, we believe a lack of
momentum could lead to a downgrade and possible
investor flight with currency implications," it said.
The crown, the region's safe haven currency has also
suffered from the concerns over the euro zone in the past weeks.
"The focus will most likely remain on the euro zone in the
coming days and even weeks and will lead the way for EUR/CZK
development," said Helena Horska of Raiffeisenbank in Prague.
For the leu the fragility of the Romanian government which
needs to implement further budget cuts remains a key risk.
"Uncertainty around the budget law for 2011 with negative
implications for the (country's) IMF (loan) deal are likely to
weigh on the RON (leu) for the near-term," said Nicolaie
Alexandru-Chidesciuc of ING Bank in Bucharest.
For data please click on <CEEFXPOLL01>
For more analyst comments on CEE currencies please click on
[]
For G7 currency poll, click: []
(Reporting by Sandor Peto; Editing by Toby Chopra)
