1 1 Cetcovsky

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1 1 Cetcovsky

  1. 1. Ukraine and CEE in the downturn Macroeconomic perspective Lviv Economic Forum October 1, 2009.
  2. 2. The growth rates accelerated strongly after the integration of countries into EU and development of Asian countries Average real GDP growth (%), 2000-2008 9.3% 8.3% 7.6% 7.3% 7.3% 7.0% 6.5% 6.5% 6.2% 6.2% 5.6% 4.5% 4.1% 4.3% 4.3% 3.4% 1.7% Russia Estonia Hungary Turkey Belarus Poland Romania Bulgaria Georgia Slovenia Latvia Euro area Ukraine Lithuania Czech Republic Slovak Republic Kazakhstan Source: Eurostat, Erste Bank Research
  3. 3. CEE economies have made a substantial progress in income convergence GDP per capita in Purchasing Power Parity (100% = Eurozone) Slovenia 86% 68% Czech Republic 59% 74% Hungary 77% 47% Slovak Republic 44% 65% Poland 69% 40% Estonia 39% 80% Lithuania 33% 74% Turkey 32% 52% Latvia 30% 67% Russia 63% 30% Bulgaria 24% 48% 2008 Romania 49% 2000 24% Belarus 20% 48% Kazakhstan 45% 19% Ukraine 29% 13% Georgia 9% 19% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Source: IMF, Erste Bank Research
  4. 4. Some countries accumulated sizeable amount of external debt increasing their vulnerability Gross external debt (% of GDP, Dec-2008) % of GDP 140% Intercompany loans 120% Other long-term debt 100% Long-term securities Short-term debt instruments 80% FX reserves 60% 40% 20% 0% Lithuania Romania Latvia Hungary Estonia Poland Croatia Bulgaria Republic Slovakia Ukraine Czech Source: IMF, Erste Group Research
  5. 5. FDIs are seen as long-term, productive capital, difficult to withdraw Average Net FDI (% of GDP, 2000-2007) 6.6% 6.4% 5.6% 5.2% 4.7% 4.1% 3.8% 3.3% 3.3% 3.4% Estonia Hungary Republic Poland Latvia Romania Croatia Slovakia Lithuania Ukraine Czech Source: Eurostat, Erste Group Research
  6. 6. Ukraine has suffered the worst economic contraction in 1Q 2009 and one of the worst in 2Q % Real GDP in 2009, % change 5.0 1Q GDP, y/y 2Q GDP, y/y 0.81.1 0.0 Estonia Turkey Hungary Republic Republic Poland Latvia Romania Ukraine Lithuania Slovenia Federation Slovak Czech Russian -5.0 -4.4 -5.3 -5.6 -6.2 -5.8 -7.0 -6.7 -7.5 -8.3 -8.7 -10.0 -9.3 -9.8 -10.9 -13.3 -13.2 -15.0 -14.3 -18.0 -18.0 -17.6 -20.0 -18.7 -20.3 -20.2 -25.0 Source: Bloomberg, Erste Bank Research
  7. 7. Exchange rates, hryvnia suffered worst devaluation in region, still not on a path to recovery Exchange rates, 100% = 1 January 2008 180% 170% Hungary 160% Poland Romania 150% Russia 140% Serbia 130% Turkey Ukraine 120% 110% 100% 90% 80% Oct-08 Apr-08 Nov-08 Jun-08 Jul-08 Apr-09 Jun-09 Jul-09 Aug-08 Aug-09 Mar-08 Mar-09 Jan-08 Feb-08 Dec-08 Feb-09 May-08 Jan-09 May-09 Sep-08 Sep-09 Source: Bloomberg, Erste Bank Research
  8. 8. Ukraine lost access to external financing, caused strong outflow in 4Q 2008, yields down after IMF loans Sovereign yields on Eurobonds, % YTM (bid), % Ukraine-12 49 Ukraine-13 44 39 34 29 24 19 14 9 4 Oct-08 Apr-09 Apr-09 Nov-08 Nov-08 Jun-09 Jul-09 Jul-09 Aug-09 Sep-08 Dec-08 Dec-08 Jan-09 Mar-09 May-09 May-09 Sep-09 Sep-09 Feb-09 Feb-09 Source: Bloomberg
  9. 9. Since February 2009 FX cash purchases became biggest concern for BoP NBU interventions, FX cash purchases and sentiment USD mn sentiment, points 3000 120 Net FX cash purchases 2000 Net NBU interventions 100 Consumer sentiment 1000 80 0 Nov-08 Aug-08 Feb-09 Apr-09 Aug-09 Dec-08 May-09 Jun-08 Jul-08 Sep-08 Oct-08 Jun-09 Jan-09 Mar-09 Jul-09 -1000 60 -2000 40 -3000 20 -4000 -5000 0 Source: NBU, GfK Ukraine 9
  10. 10. NBU’s main trouble is to satisfy demand from population – FX cash outside banks is Balance of payments Current account Aug 08 Jan-Aug 08 Aug 09 Jan-Aug 09 -815 -8 073 -44 -1 142 responsible for 52% of the total Balance of Trade -978 -9 916 -142 -1 680 Exports of goods and services 8 701 59 536 4 759 33 170 first 8M negative BoP Imports of goods and services -9 679 -69 452 -4 901 -34 850 Incomes (balance) – Rollover ratios for gross external -102 -321 -98 -1 568 Transfers (balance) 265 2 164 196 2 106 Capital and Financial debt at 76%, trade balance only Accounts Balance 2 162 14 302 -2 574 -9 707 FDI (balance) 1 204 8 140 118 2 521 slightly negative Loans and bonds (balance) 1 897 11 937 -1 694 -7 126 – FX cash outside banking system Medium and Long-Term Loans, Bonds (balance) 1 476 10 022 -768 -3 066 (purchase of foreign currency incl govt incl banks -266 1 073 -466 6 040 -525 -38 -841 -1 290 cash) put biggest pressure on incl other sectors 669 4 448 -205 -935 Short-term loans 421 1 915 -926 -4 060 BoP, sentiment is the biggest incl banks 105 1095 -894 -4 077 incl other sectors 316 820 -32 17 problem to stabilize the pressure Other capital -952 -6 155 -961 -5 081 incl. FX cash out of banks -1 017 -5 833 -554 -5 676 on hryvnia Balance of Payments 1 347 6 229 -2 618 -10 849 Supplementary information: Exports of goods and services, y/y 50% 46% -45% -44% Imports of goods and services, y/y 54% 55% -49% -50% Source: NBU 10
  11. 11. Ukrainians already see recovery, yet very sensitive to comments on economy – Sentiment decreased on 120 Consumer confidence inflationary expectations for 100 August-September on comments that state budget will 80 need “hryvnia printing” to be 60 covered 40 Consumer Confidence Index (CCI) – Ukrainians are already Index of the Current Situation (ICS) 20 expecting recovery in the long- Index of Economic Expectations term, worst fears left behind in 0 (IEE) Apr-07 Aug-07 Oct-07 Apr-08 Aug-08 Oct-08 Apr-09 Jun-07 Jun-08 Jun-09 Dec-07 Dec-08 Feb-07 Feb-08 Feb-09 February 2009, long-term expectation notable exceed current estimation of current situation Source: GfK Ukraine 11
  12. 12. NBU will have to shift to more flexible exchange rate policy as FX reserves drained FX reserves and monetary base dynamics Currency bn 200 Monetary base 14 12.70 180 Net FX reserves 12 160 140 Coverage ratio 10 Monetary base / Net 120 FX reserves 8 100 5.77 5.53 6 80 4.35 5.92 60 4 4.27 4.37 40 2 20 0 0 2003 2004 2005 2006 2007 2008 2009F Source: NBU, Erste Bank Research 12
  13. 13. Banks are suffering severe losses Bank’s net income, UAH mn 6620 7304 4144 2170 685 827 1263 2002 2003 2004 2005 2006 2007 2008 8M 2009 -20 503 Source: NBU 13
  14. 14. Costs of banks rescue Length of banking crises and government’s cost of bank rescue in % of GDP years 12 10 Spain 77-85 8 Chile 81-87 Norway 87-93 Phillipines 81-87 6 France 91-95 Malaysia 85-88 Kazakhstan 91-95 4 Estonia 92-95 Finland 91-95 Sweden 90-93 2 Ukraine 08-… % of GDP 0 0 2 4 6 8 10 12 14 Source: IMF 14
  15. 15. Where to take the resources for future development? – Since September 2008 banks have lost 28% of total hryvnia deposits, and 14% of total foreign currency deposits – Refinancing from NBU stands at 20% of total local currency banking system assets UAH mn L/D ratio 800 000 2.5 700 000 Total loans L/D ratio 2 600 000 500 000 1.5 400 000 300 000 1 200 000 0.5 100 000 0 0 Nov-05 Jun-05 Apr-06 Jul-07 Oct-08 Aug-09 May-08 Mar-09 Jan-05 Sep-06 Feb-07 Dec-07 Source: NBU 15
  16. 16. The road to house prices extreme rise and collapse and trade balance deficits Ease of doing business rating from World Bank, 2008 survey Ease of Dealing with Doing Starting a Registering Getting Paying Enforcing Construction Business Business Property Credit Taxes Contracts Permits Rank Georgia 11 5 7 2 30 64 41 Estonia 24 37 20 13 43 38 49 Lithuania 26 99 64 4 43 51 17 Latvia 27 51 78 58 4 45 15 Slovak Republic 42 66 56 11 15 120 61 Slovenia 53 26 59 108 87 84 60 Romania 55 42 91 92 15 149 55 Belarus 58 7 44 10 113 183 12 Kazakhstan 63 82 143 31 43 52 34 Poland 72 117 164 88 15 151 75 Turkey 73 56 133 36 71 75 27 Czech Republic 74 113 76 62 43 121 82 Croatia 103 101 144 109 61 39 45 Russian Federation 120 106 182 45 87 103 19 Ukraine 142 134 181 141 30 181 43 Source: World Bank
  17. 17. High tax burden, paying taxes is made complicated by administrative regulation Ukraine sets 181 place of 183 State budget revenue and surveyed countries by World % of GDP expenditure level, % of GDP Bank in ease of paying taxes and has the highest level of taxes amongst comparator countries Source: IMF
  18. 18. Necessary actions Match economic reforms to the level of financial liberalization: “ease” of starting a business or getting a construction permit should be equal to “ease” of getting a loan, lift administrative pressure on staring a business or receiving construction permit, decrease tax burden, make paying taxes easier Ensure sentiment stability among population: sustain transparent fiscal and monetary policies, create political stability
  19. 19. Pavel Cetkovsky Deputy CEO Erste Bank E-mail: Pavel.Cetkovsky@erstebank.ua Tel.: 8044 593 0000

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