CEE economies successfully integrating in the global economy
Two challenges: Home-made problems and the repercussions of the financial crisis and the global recession
Financial crisis not yet overcome
Outlook for the world economy 2009/2010
US economy: Leading the recovery?
Germany/Euro area: Deep recession – weak recovery
Monetary and fiscal policies: Exit strategies wanted
CEE economies: Highly exposed to foreign trade Exports plus imports as percentage of GDP, at current prices Seite Country 1999 2008 Poland 54.2 83.2 Czech. Rep. 112.1 149.3 Romania 60.9 75.7 Hungary 131.4 161.7 Slovakia 126.8 167.6 Bulgaria 94.9 143.7
CEE economies: Dominant role of Western European customers Share of merchandise exports to EU-15 countries in total exports in percent Seite Country 2008 Poland 58.4 Czech. Rep. 63.7 Romania 55.2 Hungary 57.7 Slovakia 55.4 Bulgaria 46.6
CEE economies: FDI inflows have fallen dramatically FDI inflows in billions of dollars/in percent of GDP Seite 1) Without Special Purpose Entities (SPE) Country 2006 2007 2008 Average 2006 - 2008 As % of GDP Expected inflows 2009 as % of GDP Poland 19.9 23.0 16.5 19.8 4.6 2.5 Czech. Rep. 5.5 10.6 10.9 9.0 5.1 3.5 Romania 11.4 9.9 13.3 11.5 7.0 3.5 Hungary 1 7.5 6.1 6.4 6.7 4.9 2.0 Slovakia 4.2 3.4 3.4 3.7 5.0 2.0 Bulgaria 7.8 11.7 9.2 9.6 23.7 7.0
CEE economies: Massive turnaround in private capital flows In billions of dollars; eleven countries according to IMF definition Seite 160.0 120.0 80.0 40.0 0.0 -40.0 Private capital flows, net Direct investments Portfolio investments of which:
CEE economies: Catching up in living standards will take another generation Per-capita GDP, average of EU-15 countries =100, in purchasing power parities Seite Country 1999 2008 Poland 42.1 51.9 Czech. Rep. 60.2 72.6 Romania 22.5 41.3 Hungary 46.4 56.8 Slovakia 43.8 64.9 Bulgaria 23.5 36.2
CEE economies: Home-made problems and international challenges Seite
Exaggerations and imbalances during the rapid catching-up process led to massive adjustments (e.g. sharp rise in private debt, loss of price competitiveness)
The global financial crisis affected the CEE economies mainly indirectly: reversal in cross border capital flows, massive problems of foreign banks as owners of CEE banks
EU membership as a stabilising factor
Financial crisis: The second “tsunami” is nearing the beach! IMF, World Economic Outlook and Global Financial Stability Report, April 2009 Seite
Total writedowns expected: 4.1 trillion dollars
of which 2/3 fall on banks and 2.0 trillion dollars on securities
of which on US assets: 2.7 trillion dollars
Disclosed writedowns by banks so far: Less than half of the expected amount Loan losses by Continental European banks: 888 billion dollars
Banks need fresh capital in large amounts:
in the US: 275 to 500 billion dollars
in Continental Europe: 475 to 950 billion dollars
World economy: Severe recession – slow recovery IMF World Economic Outlook, April 2009 Seite Results (1): Recessions associated with financial crisis are longer and more severe. It takes almost three years to get back to pre-recession output levels, which is more than one and a half years longer than in the case of other recessions. Results (2): Globally synchronized recessions are also longer and deeper than other recessions. Recessions which are both financial sector driven and globally synchronized last almost two years and it takes over three and a half years for economies to return to pre-crisis output levels.
122 recessions in industrial countries since 1960 were analyzed
The IMF distinguishes between recessions associated with financial shocks and other recessions. It also distinguishes between recessions that were highly synchronized across countries and recessions that were country or regionally specific.
World economy: Severe recession in 2009 (1) Inflation-adjusted GDP, change on previous year in percent, market exchange rates Seite Forecast
World economy: Severe recession in 2009 (2) Inflation-adjusted GDP, change on previous year, in percent Seite
US: Recovery, but not yet an upswing in sight Purchasing mangers index (ISM, manufacturing) and consumer confidence (Conference Board), seasonally-adjusted monthly figures Seite 2007 2008 2009 Mar May Aug Mar May
Overlapping forces obscuring the underlying cyclical dynamism Seite
Bounce-back effect: The sharp fall in activity – mainly in manufacturing and exports – was exacerbated due to severe financing constraints.
Underlying cyclical forces: Inventory adjustment, sharp reduction in business fixed investment, rising unemployment.
The numbers are difficult to interpret. The outlook remains highly uncertain.
US: Typical recession – slow recovery Inflation and seasonally-adjusted GDP, change on previous quarter in percent, annualised Seite -6.5 2007 2009 2010 Forecast Recession 2008 -4.5 -2.5 -0.5 1.5 5.5 3.5
US: High losses of wealth Change in net assets of private households in trillions of dollars and net assets as a percentage of disposable income Seite Memorandum item: disposable income 2008: 10.81 trillion dollars
US: Risky course General government fiscal balance as percent of GDP Seite Forecast 3.0 0.0 -3.0 -6.0 -9.0 -12.0 3.0 0.0 -3.0 -6.0 -9.0 -12.0
US: Indicators and contra-indicators for a (strong) recovery in 2010 Seite
Inventory adjustment and housing market correction is (almost) completed
Sharp fall in employment has reduced the cost base of businesses
Adjustment in private households’ spending and saving behaviour is almost completed
Strong stimulus from monetary and fiscal policies
Incalculable risks in the US financial sector (credit crunch)
Private households’ deleveraging will continue
Highly expansionary monetary and fiscal policies will raise inflation expectations and undermine confidence in the dollar (failed exit strategies)
Germany: Recovery, but not yet an upswing in sight ifo business climate, seasonally-adjusted monthly figures, 2000=100 Seite 2007 2008 2009 Mar May Mar May Mar May
Germany: Signs of stabilisation after dramatic fall Order intake (in volume terms) and production in manufacturing, seasonally-adjusted monthly figures, 2005=100 Seite 2006 2007 2008 2009 Mar May Mar May Mar May Mar May Jun
Germany: Slump in winter Inflation and seasonally-adjusted GDP, quarterly figures, 2000=100 Seite Annual average: +1.3% Carry over: -2.1% Forecast Annual average: -5.0%
Euro area: No inflation risks for the foreseeable future HICP and core rate (excl. unproc. food and energy), change on previous year in percent Seite 4.0 2.0 1.0 0.0 -1.0 3.0
Commodity prices: Turn up again HWWI commodity price index, dollar basis, 2000=100 Seite
Advanced economies: Sharp rise in government deficits General government fiscal balance as percent of GDP Seite Germany Euro area France United Kingdom Italy US
Advanced economies: High debt burden Gross government debt as percent of GDP Seite Germany Euro area United Kingdom US
US: Strong growth in the monetary base – stagnating credit volumes In billions of dollars and change on previous year in percent Seite Updated: August 24, 2009 1) Change on December 2008, annual rate 1) 1) 1) 1) 1) Monetary base M2 Credit Commercial and industrial loans Real estate Consumer Dec. 2006 811.1 +2.5 7033.6 +5.4 1187.5 +14.7 3378.8 +14.9 742.8 +5.0 Dec. 2007 822.4 +1.4 7438.4 +5.8 1430.8 +20.5 3607.9 +6.8 806.8 +8.6 Dec. 2008 1651.3 +100.8 8153.7 +9.6 1618.6 +13.1 3820.2 +5.9 861.8 +6.8 July 2009 1666.2 +1.6 8347.8 +4.1 1489.2 -13.3 3840.3 +0.9 850.1 -2.3
Euro area: Credit expansion has slowed sharply In billions of euros and change on previous year in percent Seite Updated: August 27, 2009 1) Change on December 2008, annual rate 1) 1) 1) 1) Monetary base M3 Credit To businesses Consumer credit housing loans Dec. 2006 771.8 +11.4 7743.7 +9.9 3836.9 +12.8 584.2 +5.8 3194.3 +10.0 Dec. 2007 841.9 +9.1 8664.6 +11.6 4383.4 +14.2 616.1 +5.5 3419.9 +7.1 Dec. 2008 1150.7 +36.7 9407.3 +7.5 4825.8 +10.1 630.8 +2.4 3480.9 +1.8 July 2009 1102.0 +23.8 9446.0 +0.7 4759.0 -2.4 631.0 +0.1 3488.0 +0.3
US/euro area: Rising short-term rates from spring 2010 onwards In percent p.a. Seite
Bond market: Low yields for some months 10-y government bond yields, monthly averages, in percent Seite 2007 2009 2010 2008 Forecast Bunds Dec Mar Dec Mar Dec Mar
The recovery from the deep recession will be slow; an outright upswing will not occur before 2011.
The main risks are persistent weaknesses in the banking sector and rising unemployment in Europe.
The main challenge for policy makers is determining when and how fast exit strategies should be implemented.
Growth in CEE economies will be dampened for a while by slow growth in the EU-15 economies and the correction of imbalances (debt, competitiveness). In the medium term, however, the process of catching up (real convergence) will continue.
This publication constitutes research of a non-binding nature on the market situation and the investment instruments cited here at the time of the publication of this information on 20 September 2009 . This research is, to the best of our knowledge, based on generally accessible sources which are reliable and accurate. However, no liability can be accepted for any errors or inaccuracies in information derived from these sources. The information used in this publication has not been checked for accuracy, completeness or relevance to current events. Consequently, no guarantee can be assumed for the completeness and accuracy of this report. This publication is for information only. It is not intended as a substitute for individual professional advice on investments and assets. Our investment consultants are at your disposal should you wish to procure additional up-to-date information.
Thank you for your attention! Seite Dr. Jürgen Pfister Chief Economist Phone: +49 (0)89.2171.21750 Email: email@example.com