Hi

The latest forecasts for 2009 from the Economist Intelligence Unit for CEE are fascinating - and offer a relatively rosy outlook considering what is going on globally.

Here's their conclusion:

FDI flows to eastern Europe have, nevertheless, thus far proved very resilient to the global slowdown. To a certain extent, economic retrenchment in western Europe has led to a further shift in productive capacity to eastern Europe. FDI inflows into the region are estimated at a record US$158bn in 2008, slightly above the previous record of US$156bn in 2007. At present, we forecast a 20% reduction in inflows in 2009, to some US$128bn. The FDI outlook represents the key to the overall forecast.

And for individual countries:

Czech 3.4% (from 5.4%)
Poland 3.8% (from 4.3%)
Slovakia 5.0% (from 5.2%)
Bulgaria 3.4% (from 5.5%)
Romania 4.8% (from 5.0%)
 
Estonia -1% (from 2%)
Latvia -0.5% (from 3%)
Hungary 1.5% (from 3.4%)
 
So, as we've said before, it is the Baltics and Hungary that are really going to suffer.

And the latest snippets relating to the IMF bailout of Hungary sound ominous in terms of the amount of austerity Hungary will have to bear - this from the BBC report - "The 'substantial financing package' for Hungary is due to be finalised in the next few days, the IMF said.

'It is conditional upon Hungary adopting "strong policies" and will be drawn from the IMF, the EU, and some individual European governments "together with regional and other multilateral institutions", IMF Managing Director Dominique Strauss-Kahn said in a statement.

"The policies Hungary envisages justify an exceptional level of access to fund resources," he added.

I read that as there are going to be some really tough conditions to the loan, as is normal with the IMF, and is exactly what we saw during the Asian crisis when the IMF came in with truck loads of cash.

But I also think that this could be greatly to Hungary's advantage in the longer term - facing up to tough medicine now will help it come back stronger than those economies that don't adopt tough changes.

I think the other key point here is that all that FDI the EIU is forecasting will be highly uneven in CEE next year and beyond. Those markets that adopt the most disciplined response to the credit crisis and that address big deficits will be most successful.

Romania, in particular, looks very resilient in terms of GDP growth next year.

And, as Neil Lewis just mentioned to me - a 20% reduction in FDI is like glory days compared to gory days elsewhere!


Cheers
 

This is very interesting stuff. Another thing the article asks is about CEE dependence on the car - and car sales.

With car sales falling sharply - this looks worrying - but take Peugot / Renault - who have a huge investment in Slovakia - they have a commitment (apparently) not to cut French jobs - so they are closing their plant in Spain due to reduced demand - of course the Slovak plant is more efficient and also cheaper - so no change there - but the pain is going to be felt elsewhere - in this case Spain - but watch out UK, Belgium and Germany for the other manufacturers.

Cheers
Neil

Hi

So now we know the size of the buck stop loan Hungary will get - a massive $25.1bn!

The austerity measures and cutbacks in government spending will be huge in return. Even Prime Minister Gyurcsany is now talking of a recession. Lots of pain then for Hungary - but will they be one of the first countries out of this mess as a result of this medicine and therefore a great place to go property shopping in the next 12 months?

This IMF loan is unlikely to ever be used, it is more of a guarantee to stop spooked investors fleeing the market, the stabilization of the HUF vs all currencies indicates that this plan has worked.

Hungary has done much recently to reduce its deficits but there has always been several places the government has feared to tread, they are afterall a minority government.

This loan is effectively an excuse to impliment tough reform on the government pensions and cut back the bloated state, whilst enabling them to blame the tough times on the IMF.

This loan is the best thing that could have happened to Hungary. Since everyone Knows that these reforms need to be made, but it would have been political suicide for any party to actually implement without some way of externalising the blame.

I am even more confident now in Hungary than I was before the credit crunch, time and time again doomsayers have predicted the downfall of the Hungarian economy and they have been consistantly wrong. Hungary's resiliance has won it many fans and now that it has shown once again in the worst of situations that it will prevail against overwhelming odds and as a result the investors will come in droves.

With regards to those figures at the top, it is important to note that Hungarys original prediction of 3.4% growth was from a much lower growth, thus the economy IS NOT CONTRACTING, whereas EVERYWHERE else there is a contraction from higher growth to lower growth (talking over all GDP figures).

As for the construction industry ..... most of the dead wood developers had already hit the fan prior to the credit crunch, those that are still standing now are used to these market conditions and are thus far better placed to grow once these reforms are carried out and growth returns.

Hi Richard

I think we basically agree on the country's prospects. The same goes for other crisis hit economies where dramatic and preemptory action is taken.

But I also think you breeze over the real position. The country was on the brink of default. The loan was the only thing to save it. And whether the loan facility is fully used or not isn't the point, and I agree it's huge and shouldn't be needed in anything like its full amount. But It comes only with a big big price.

And you don't get to near default as a country and find all problems have gone away because the IMF/ECB has stepped in. Hungary was on its deathbed. It's now conscious and looking round the room. This is just the start of the fightback to health.

The facility isn't an 'excuse' to carry out reforms, they will be the forced consequence of this emergency measure and they'll hurt.

The result though is what matters and that points to very severe times ahead. So, there's a way to go before this economy reaches bottom. But, as it does do so, then, yes, it will probably be a great place to invest.

But the country's own Foreign ministry even predicts recession and the PM recently made clear how bad the crisis had become and, more importantly, what now lies ahead:

Nov. 2 (Bloomberg) -- Hungary faced a potential ``state default and a social crisis'' without the 20 billion euros ($26.2 billion) of international aid secured last week, Vasarnapi Hirek said, citing an interview with Prime Minister Ferenc Gyurcsany.

``The worst case scenario we feared for days was that the forint would start plunging, all the way to 350 or 400 per euro,'' Gyurcsany told the newspaper. ``That could have become 20 percent to 30 percent inflation in no time.''

Hungary's financial crisis was averted by the credit line from the International Monetary Fund, the European Union and the World Bank, Gyurcsany told the newspaper. The country now faces the effects of a ``prolonged'' economic crisis, he added.

Found this interesting chart .....

Richard the scale is in CHF millions.

Hardly a fair comparison when the population of Poland is 38M and hungary 9.9M.

Population of 3.8times larger but FX loans only 2.75 times larger.

Hi Neil

More evidence of , if anything, even more of a manufacturing shift away from high cost centres as the economic squeeze tightens further.

This from our Latest Property News service today:

'Car manufacturer Ford has confirmed that it is not planning to alter its plans to open a new plant in Romania.
The company stated that the ongoing financial crisis across the world is not about to lead to it scrapping or downsizing its proposals for a plant in Craiova, reports Ziarul Financiar.

Hans Juergen Fuchs, spokesperson for Ford, added that the number of employees will also remain the same as originally planned.

Instead, capacity will be reduced in more established destinations elsewhere in the continent, in particular western Europe.

"The financial crisis in Europe has not led to a change of plans for the plant in Craiova," Mr Fuchs insisted.
He added that the value of the investment remains the same at €675 million.'

cheers