News 20111010 resistance

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Resistance

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News 20111010 resistance

  1. 1. News October 10th, 2011 Resistance to turbulence of Central and Eastern Europe countries has improved Capital and currencies of Central and Eastern Europe have been decreasing in recent weeks, amid fears of the crisis in the euro area, but nobody provides for these countries a return to recession, reports the Financial Times in Thursdays edition. In recent years, ties between CEE with the west of the continent have been both a source of strength and a weakness for the first. For much of the past decade, foreign investment flooded the region, stimulating economic growth, but creating both imbalances and swelling asset bubbles. When credit flows have dried up after Lehman Brothers collapse in 2008, the region was among the most affected in the world - although there were notable exceptions such as Poland, which has avoided recession. Subsequently, Poland, Czech Republic, Slovakia and Hungary have returned stronger than much of the rest of the continent, driven by their power of production, but also the contact with the German export machine, which investments in the last decade have created. Currently, however, as economic outlook darkens again developed markets, Central Europe again felt fear. Region capital and currencies declined in recent weeks amid the crisis of euro zone and some economies in the region have experienced the worst quarter from the last three months of 2008. In this context, the International Monetary Fund last month joined other bodies that have reduced forecasts for economic growth this year and next year for much of the region. Despite this, none of forecasts is talking about a return to recession. Whilst towards the south-east, in the Balkans, the outlook looks worse, as the countries of Central Europe and Baltic States there is reason to believe that they are less vulnerable and better equipped to deal with the problems than many countries in the euro zone. Poland, the largest domestic market in the region, demonstrates once again a special resistance to turbulence. Public debt dynamics in CEE countries is generally better than in Western countries. For example, although Hungarys debt is 77% of GDP which is high for the region, compared with many countries in the euro area, it is lower and falling. Sam Vecht, manager of BlackRocks Eastern European Trust investment fund, noted that rating agencies have upgraded the credit ratings of European "emerging" states in recent months, including Latvia, Serbia, Hungary, Romania and the Czech Republic. In contrast, in Western Europe, ratings were lowered for Greece, Spain, Portugal and Ireland. Although Slovakia, Slovenia and Estonia are in the euro area, many other countries in the region still have currency with free floating and up to 10% depreciation against the euro in recent weeks has increased competitiveness. However, once the current crisis passes, growth prospects for the next 10 years look different from years of rapid growth before 2008. This is partly due to the fact that countries central European are already "hybrid" economies somewhere between developed and emerging markets, explains Marcin Hejka, regional managing director for Intel Capital. In medium term, growth in these countries is expected to exceed that of Western Europe, partly due to the ongoing process of Western Europe countries catching up.Eng. Paul Keisch Page 1

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