Timothy Ash of RBS -
Assumptions that the CEE region was well positioned to ride out the fallout from the global credit crunch have proven to be misplaced. The region has been hit by the twin whammies of de-globalisation and credit deleveraging. Exporters have both lost export markets and also struggled to secure export financing in the aftermath of the collapse of Lehman Brothers.
Commodity exporters (Russia, Kazakhstan and Ukraine) have been hit as hard as those economies with more diversified/manufacturing export bases. Exports by dollar value were lower by around 25%.
Slovakia has been particularly badly impacted, given the weight of auto production/exports in its economy - a situation also not helped by the fact that Slovakia is now a member of the Eurozone, limiting options to allow the exchange rate to help cushion some of the blow; arguably it now faces increased competition from other economies in the region which have seen large currency corrections (eg. Poland and the Czech Republic).
The collapse in exports has clear implications for growth, and we expect the region as a whole to post a real GDP decline of as much as 4% in 2009, with little prospect of a strong recovery in 2010. Weaker real GDP growth will increase budget deficits/budget financing needs and expose frailties in the banking system across the region via rising non-performing loans (NPLs).
Timothy Ash is Head of CEEMEA Research at RBS
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