Wednesday, April 01, 2009
eastern europe update
[A]ccording to the latest report on the region from Fitch:Many countries in EE are relatively open, so the global recession has been rapidly transmitted to exports. The Czech Republic, Hungary, Slovakia and Slovenia are particularly open economies and closely integrated within the EU economy (particularly Germany): exports of goods are equivalent to 79% of GDP in Slovakia, 70% in the Czech Republic and 68% in Hungary (2007 data). That said, exports typically have a high import content, so the effect on value‐added is much lower.
So you can forget about foreign exchange-denominated loan exposure at this point in the likes of Hungary, Czech Republic and Poland. While this is still obviously a concern (and regional currency euro cross-rates are creeping back to the lows of February which previously set off the EE panic) the escalation of the crisis into the real economy and trade decline is now the key vulnerability.
with export volumes crashing, as best illustrated by the difficulties of (erstwhile) trade-surplus nations like germany, japan and china, these small open economies are facing a devastating twin blow -- massive private sector balance sheet damage related to forex, and a titanic collapse in trade and therefore income.