SEB: Eastern European Outlook: Increased polarisation - Russia and Poland withstanding the euro zone crisis well
(Thomson Reuters ONE) -
Eastern European Outlook: Increased polarisation - Russia and Poland
withstanding the euro zone crisis well
Eastern (including Central) Europe also began an economic deceleration in the
second half of 2011. But as SEB predicted, regional heavyweights Russia and
Poland have withstood the international crisis well. SEB still expects their
slowdown to be mild due to moderate exports in relation to GDP, modest public
debt and small or moderate dependence on bank financing via the euro zone, which
is in recession this year. Russia is also benefiting from high oil prices,
writes SEB in its March 2012 issue of Eastern European Outlook.
Precisely because of differences in dependence on the euro zone's banking system
and import demand, the economic trend in Eastern Europe is becoming more and
more polarised. The northern parts, including Russia and Poland, will resist the
euro zone crisis relatively well, while some central and especially southern
parts of the region will be harder hit. The three Baltic countries and the Czech
Republic are among the "medium hard hit" while Bulgaria, Croatia, Romania,
Hungary and Ukraine are the "hardest hit", as a consequence of their relatively
strong banking links with the euro zone, although Ukraine will muddle through
with decent GDP growth.
By supplying low-cost loans to banks and other financial institutions in the
euro zone, the European Central Bank's long-term refinancing operations (LTRO I
and II) have greatly reduced the risks of a severe, lengthy credit crunch in
Eastern Europe too. But credit conditions tightened in the region late in 2011
and will only gradually revert to normal during the coming year.
"The ECB's loans to the euro zone banking system have proved to be a successful
move. Interbank borrowing costs have fallen in both Western and Eastern Europe
in the past few months. But some stress symptoms persist, partly due to
continued uncertainty about the euro question in Greece and Portugal. This
spills over into Eastern European banks as well, since the banking sectors of
many countries in the region are largely owned by Western banks. This indicates
that credit conditions will remain abnormally tight at least during 2012,
something that will also hamper economic growth," says Mikael Johansson, Head of
Eastern European Research at SEB and Chief Editor of Eastern European Outlook.
Inflation will fall this year in most Eastern European countries, but core
inflation will remain relatively high in Estonia and Poland. The recent oil
price surge is a general upside risk in inflation forecasts.
In all six countries covered by Eastern European Outlook, growth will drop
somewhat below trend in 2012-2013 - in the Baltics considerably below trend this
year. A rebound will occur in 2013.
Russia's GDP will increase by 3.8 per cent in 2012 and 4.1 per cent in 2013. The
economy will be sustained by high oil prices, high real wage growth and
expansionary fiscal policy. Yet long-term question marks remain, due to heavy
commodity dependence and a slow pace of reform. There may be some opening for
reforms now that Vladimir Putin is returning as president.
"We still have a positive view of Russian growth in the short term. At the same
time, Russia ought to be capable of achieving even higher growth, say 6-7 per
cent, considering the high oil prices. This underscores the need for more
reforms. When Russia joins the World Trade Organisation this summer, it will be
a step in the right direction that may facilitate trade and investments. But we
should not expect that this will automatically solve Russia's structural
problems," says Daniel Bergvall, Russia and Ukraine analyst at SEB Economic
Research.
* Poland's growth will slow a bit to 3.0 per cent in 2012 and then accelerate
to 3.6 per cent in 2013. Capital spending will increasingly drive the
economy. Fiscal policy will continue to tighten, while monetary policy will
shift and key interest rates will be cut twice during the second half of
2012. The zloty will gain further strength after its recent volatility.
* Ukraine's growth will dip to 3.2 per cent in 2012 but reach 4.2 per cent in
2013. High steel and agricultural prices will provide support. Relations
with the International Monetary Fund and the European Union are tense. If
growth appears to be falling further, Ukraine may bend to IMF demands,
enabling its frozen loan agreement to be resumed.
* Estonia's growth will fall abruptly to 1.5 per cent in 2012 and climb to
2.5 per cent in 2013. Weaker demand in Sweden and Finland is hurting
expansion. Private sector deleveraging continues, and net debt has fallen
sharply. High inflation will persist.
* Lithuania's growth will decelerate sharply this year and rise to 3.0 per
cent in 2013. The government is aiming at euro zone accession in 2014 but
will have difficulty meeting the budget criterion; we predict conversion to
the euro in 2015. The governing coalition will change after this autumn's
parliamentary election.
* Latvia will decelerate more smoothly than Estonia and Lithuania, since it is
not as export-dependent. Growth will fall to 2.5 per cent in 2012 and speed
up to 4 per cent in 2013. Continued fiscal austerity will pave the way to
euro zone accession in 2014 as planned.
For further information, please Press contact:
contact: Elisabeth Lennhede, Press & PR
Mikael Johansson, Head of Eastern +46 70 763 99 16
European Research, SEB Economic elisabeth.lennhede(at)seb.se
Research,
+46 70 372 28 26
Daniel Bergvall, SEB Economic
Research,
+46 73 523 52 87
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SEB is a leading Nordic financial services group. As a relationship bank, SEB
in Sweden and the Baltic countries offers financial advice and a wide range of
financial services. In Denmark, Finland, Norway and Germany the bank's
operations have a strong focus on corporate and investment banking based on a
full-service offering to corporate and institutional clients. The
international nature of SEB's business is reflected in its presence in some
20 countries worldwide. On December 31, 2011, the Group's total assets
amounted to SEK 2,363 billion while its assets under management totalled
SEK 1,261 billion. The Group has about 17,000 employees. Read more about SEB
at www.sebgroup.com.
Eastern European Outlook (PDF):
http://hugin.info/1208/R/1597820/503675.pdf
Press release (PDF):
http://hugin.info/1208/R/1597820/503673.pdf
This announcement is distributed by Thomson Reuters on behalf of
Thomson Reuters clients. The owner of this announcement warrants that:
(i) the releases contained herein are protected by copyright and
other applicable laws; and
(ii) they are solely responsible for the content, accuracy and
originality of the information contained therein.
Source: SEB via Thomson Reuters ONE
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