The optimism sweeping markets in recent weeks belies the
fact that central and eastern Europes real economy has
further to fall, senior bankers have warned.
Hans Joerg Rudloff, chairman of Barclays Capital, said that
the rebound in global markets could prove a disappointment.
Its purely playing out the cycle. There inevitably
comes a point where the market is just left with long term
money. Is it justified? No one can say that with
Rudloff, who sits on the board of Rosneft, Russias
largest oil company, said: Theres no euphoria
whatsoever, its simply that the markets have started to
work again. What we are seeing is the relief that we stopped
the slide, but how we climb back to a healthy level isnt
clear. You have stabilisation at a very low level. The
risk [of another crash] still exists but that depends on the
the deficiencies of the markets and our economic
Herbert Stepic, chief executive of Raiffeisen International,
told Emerging Markets in an interview: We are
now entering a very severe crisis of the real economy.
The real economy will deteriorate further, Stepic
warned. We will see further increasing non-performing
loans (NPLs) more in some countries, less in others
but all in all they will increase everywhere.
We will reach the bottom by the end of this year or
the middle of next. We will have a relatively long
U shaped development, before we see a slightly
positive reaction in 2011. We will only be able to talk about
normality in mid 2011.
Because the origin of the crisis was external to the region,
countries that are very export dependent, such as
Hungary, also Ukraine, but also countries like Czech republic,
are hit first. The crisis came from the west; the west is
not importing any more, so the east can not export. That leads
to unemployment, factory closures, and the pattern that we
Different countries are at different stages. For
example, Romanic is only 35% dependent on exports. so its real
economy is much less hard hit by the financial crisis. There is
a much smaller number of NPLs. Ukraine is at the forefront of
the crisis, because there a number of issues came together: raw
material prices, lack of funding, political imbalances in the
economy, and huge corruption.
Russia is in a different position, due to its foreign
currency reserves position and the possible recovery of raw
material prices. The problem in Russia is different:
its the problem of the indebtedness of private industry
and also the huge non consolidated banking industry.
A crucial element in the economic downturn is the
evaporation of private capital flows. The Institute for
International Finance (IIF) estimates that private capital
flows to emerging Europe will equate to just 1% of GDP in 2009,
compared with 13% of GDP in 2007.