The dramatic spike in financial markets across central and
eastern Europe is not justified by the regions economic
outlook, leading economists have told Emerging
Stock markets have soared since hitting a trough in March with
some such as Ukraine doubling in value. Equity prices rose
further this week in the face a fresh swath of warnings from
forecasters that the region faces a deep recession this year.
The IMF said several emerging European economies faced a
deep crisis, saying the region would contract 4.9%
this year and post an anaemic recovery of just 0.7% in 2010.
The Economist Intelligence Unit said the turmoil in global
credit markets had hit transition economies more than any other
emerging market bloc. It said the 18 transition countries would
contract by 3.0% this year, with the Baltic states
Estonia, Lithuania and Latvia slumping 11.4%.
Last week the EBRD slashed its 2009 forecast for emerging
Europe to a 5.2% contraction from 0.1% growth predicted earlier
this year. The data are consistently worse than
expected, Stephen Lewis, chief economist at Monument
Securities and a veteran of several crises, told Emerging
Leading private sector economists told Emerging Markets few of
the problems that had led to the financial crisis had been
resolved and that the global rebound in optimism among
investors that had pulled up markets across central and eastern
European markets would reverse in the face of a fresh wave of
Willem Buiter, former chief economist at the EBRD and now
professor at the European Institute of the London School of
Economics, said markets had benefited from an indiscriminate
surge of optimism. Markets are up because the OECD has
said this is the turning point, he told Emerging
If they are right, that is something to rejoice about.
But these countries still have to put back together their
financial systems. It would be good news for them, just as it
would be good news for the rest of the OECD, but whether the
optimism is justified I am not clear about.
Raghuram Rajan, a former IMF chief economist and professor at
Chicago Booth, said there was a risk markets were
excessively exuberant. A lot of people
suggest that we have not dealt with the fundamental problems
and then we will return to a period of really slow
Danny Gabay, a director of Fathom Consulting in London and a
former Bank of England economist, doubted the region was on the
brink of sustained recovery.
What I can say with some confidence is that the freefall
weve had has landed. But I am not convinced that we have
landed at the bottom. It may be just a ledge, he told
In terms of what caused this crisis, the elements are
still in place and nothing has been fixed. So it is plausible
that eastern Europe could have a bounceback, but the banking
crisis has not been resolved at all, and in our view there are
some big problems out there, and that means that any kind of
sustained recovery and the durability that is the big
issue is another question.