Worldwide Property Forums | Good news for ps investors

The World Bank’s latest review of the EU8 +2 (the plus 2 being Romania and Bulgaria), which is just out, makes fascinating reading – and, it has to be said, agrees with much of what we’ve been saying at PS! Obviously, it’s too big a report to detail here and anyone can read it for themselves, but to me there are some key points to draw from it. A key point - FDI is the most secure type of investment in these countries – rather than bank borrowing or portfolio investment – and FDI covers 100% of the current account deficits in Czech, and Poland and 90% in Bulgaria and two thirds in Slovakia and Romania. That is a hugely important because it is the current account deficits that makes CEE countries vulnerable to credit tightening, as the report says. The report says: ‘There remain two distinct risks for the EU8+2 ….The first is that tightening credit will weaken growth in developed markets with implications for emerging market growth transmitted via trade links. ‘ Ie: CEE exports may have to slow. ‘The second risk is that there might be a deepening financial crisis and the possibility of a sustained reduction in external finance.’ Ie: They may find it harder to borrow. Those are the risks, which we have been into before. BUT This quote stands out for me: ‘The financial system transparency and governance practices and the reserve positions of the EU8+2 are strong and compare favourably with those prevailing in emerging markets during previous periods of turbulence. ‘ As we’ve always said at PS, the EU has everything to do with this benign fiscal position. One of the main reasons why we have always stressed the EU factor should never be underestimated. The report goes on to make the point – again which we have done - that a slowdown in growth in some CEE markets may actually be a good thing. Some markets – like Latvia, for example, with a current account deficit running at 30% of GDP are seriously overheating. And here, for me, is the key part: ‘In this atmosphere of short term turbulence it is important not to lose sight of the longer term trends... ‘With the exception of Hungary, growth remains high throughout the EU8+2 and in the case of Latvia represents serious overheating. ‘This growth is sustained largely by consumption and investment. With tightening labour markets, large increases in real wages and employment and very rapid credit expansion, a moderate slowdown in growth may in fact be desirable in the countries showing signs of overheating.’ So, in summary, we have • Most economies are in far better shape than during any previous financial turbulence because of big reserves and tighter fiscal policies. Thanks you the EU! • A slowdown in growth – and therefore a cooling in some property markets – is a good thing for many markets. Bear in mind, we’re talking about property price growth cooling in some cases from 50%+ to perhaps 20%+. Not exactly tortoise-like growth! • Poland, Romania, Czech and Bulgaria as well as Slovakia are best protected by very strong FDI inflows, rather than easily withdrawn porfolio investment (Hungary) or bank borrowing (Baltics)