CEE in the global crisis

Transcription

1 - Stock-taking and perspectives - Think Tank of Deutsche Bank Group Gunter Deuber, April 21

2 Agenda 1 After crisis year 29, 21 remains challenging 2 Some comments on recent eye-catchers in CEE 3 Summary & Outlook

3 1 Risk of economic setback initially underestimated Strongest setback in growth (expectations) in CEE & CIS Real GDP growth (forecasts and final outcome for the year 29), % yoy World EA EM CEE CIS IMF WEO 8 forecast (left) IMF WEO 9 forecast (left) Final outcome (left) Difference WEO 8 WEO 9, percentage points (right) Source: IMF, DB Research Setback in CEE was stronger than in most other regions (DM & EM) Global crisis has hit CEE as perfect storm Better outcome than in IMF s WEO 29 forecast mainly driven by Poland s weight in the CEE aggregate Page 3

4 1 Current account adjustment comparable to Asian crisis Substantial current account adjustment within 1 year Change in the current account balance in % of GDP, percentage points t-5 t-4 t-3 t-2 t-1 t t+1 CEE: Adjusting to new reality E CEE CEE t=29; ASEAN t=1998. Sources: IMF, DB Research ASEAN-5 Current account, % of GDP Source: National sources, DB Research Real GDP, % yoy Page 4

5 1 What s the difference to the Asian crisis Trade performance CEE (29) vs. ASEAN-5 (1998) % yoy t-8 t-7 t-6 t-5 t-4 t-3 t-2 t-1 t t+1 CEE export volume of goods CEE import volume of goods ASEAN-5 export volume of goods ASEAN-5 import volume of goods Large on-shore presence of foreign banks plus coordinated action (private + public sector) Early IMF/EU support and increased flexibility in IMF/EU conditionality Weak backdrop in most DM (incl. major EU countries) will not bode well for a strong and sustainable export-led recovery Sources: IMF, DB Research Page 5

6 1 Different crisis reaction in comparison to Euro area - strongly differing performance in the global crisis CEE: Low saving rates, soaring consumption Gross national savings, % of GDP, private consumption, % yoy Striking country differences in coping with the global crisis CEE maximum* real GDP, % yoy (left) Savings Euro area (left) Savings CEE (left) Private consumption Euro area (right) Private consumption CEE (right) CEE minimum* real GDP, % yoy (left) Difference Max Min GDP growth rate (right) * Maximum and minimum growth rate among all CEE. Sources: IMF, DB Research Sources: IMF, national sources, DB Research Page 6

7 1 21 will remain challenging for CEE banks Rise in NPLs and unemployment to bottom out later in 21 NPLs in % of total loans (nat. definition), CZ HU PL EE BG LT RO LV NPLs, 28 eop NPLs, latest value Unemployment, 28 eop Unemployment, latest value NPLs peak level forecast lower bound* NPLs peak level forecast upper bound* Forecasts for NPL peak level DBR Credit Monitor Eastern Europe, Sources: Eurostat, nat. central banks and regulators, DB Research A lot of adjustment in the real economy and the banking sectors did take place already However, CEE will remain the most vulnerable EM region due to high external financing requirements and debt overhang NPLs and unemployment to peak later in 21, only sluggish downtrend afterwards Page 7

8 1 Maastricht criteria in reach be prepared for challenging sovereign debt outlook in developed markets CEE: Debt criterion well in reach Budget deficit, % of GDP (y-axis), public debt, % of GDP (x-axis) Welcome to a new world! Public debt*, % of GDP (baseline) EE EE LV LT RO BG RO SK CZ LV SI SK Sources: Eurostat, DB Research CZ PL LT PL SI BG HU HU Developed markets Emerging markets *GDP-weighted. Source: DB Research, Public Debt in 22 Page 8

9 1 CEE to profit from export-led rebound in Germany and its close trade links to Europe s export hub Sluggish Eurozone recovery Real GDP, % yoy E 21F 211F G7 US EA DE CEE Sources: DB Global Markets Research, DB Research but CEE to join EM recovery Real GDP, % yoy F 211E Euroland CZ HU PL RU EM Sources: national sources, DB Research Page 9

10 Agenda 1 After crisis year 29, 21 remains challenging 2 Some comments on recent eye-catchers in CEE 3 Summary & Outlook

11 Some comments on recent eye-catchers in CEE What is the reason for Poland s outstanding economic performance? Was it a mistake to develop export-oriented industries that suffered much from shrinking EU markets? Has it been an advantage to be in the Eurozone? Will western banks be able to support their CEE subsidiaries? Page 11

12 What is the reason for Poland s outstanding economic performance? No pre-crisis economic boom Real GDP, % yoy E CEE maximum* real GDP, % yoy CEE minimum* real GDP, % yoy Poland * Maximum and minimum growth rate among all CEE. Sources: IMF, national sources, DB Research Moderate credit expansion Credit growth, % yoy E CEE maximum* credit growth, % yoy CEE minimum* credit growth, % yoy Poland * Maximum and minimum growth rate among all CEE. Sources: IMF, national sources, DB Research Page 12

13 What is the reason for Poland s outstanding economic performance? Strong fiscal expansion to counterbalance downturn Cyclically-adjusted fiscal balance, % of GDP E CZ HU PL Eurozone Sources: OECD, DB Research Flexibility like in hard hit countries (HU, RO or Baltics) Difference between export and import growth, percentage points PL CZ HU RO Baltics Sources: Eurostat, national statistics, DB Research Page 13

14 Poland s outstanding economic performance A brief summary Mix of structural factors and good policies No pre-crisis economic boom Economy was hit in late stage of cyclical upturn Lower dependency on external trade Credible monetary and FX regime Prudent stance in the banking sector, regulation on FX (household) lending Fiscal leeway to counterbalance downturn The year 29 was exceptional due to strong government expansion and positive growth contribution of net exports Page 14

15 Was it a mistake to develop export-oriented industries that suffered much from shrinking EU markets? Pronounced dependency on intra-eu-trade Intra-EU-trade, % of total trade (28) Most CEE strongly exposed to trade shocks as most of them are small and open economies Trade dependency - above the average of most developed EU countries - higher than in most other EM 55 5 CZ SK PL LV EE HU SI RO LT BG BE NL DE IT UK Sources: Eurostat, DB Research Dependency on intra-eu-trade higher than in most EU-15 countries Page 15

16 Was it a mistake to develop export-oriented industries that suffered much from shrinking EU markets? High concentration on sectors hit hard by the global crisis Share in total trade, % 1% 8% 6% 4% 2% % Exports Imports Exports Imports EU 15 EU 15 CEE CEE Services Transport equipment Source: Eurostat, OENB, DB Research Other manufacturing Primary goods Striking dependency on manufacturing exports, higher than in the EU-15 and most other EM Manufacturing concentrated in the sectors of durable consumption and investment goods (sectors that suffered the most in the global crisis) - Exports of goods from CEE dropped by 23% during the peak of the crisis in 29, service exports by 6% Page 16

17 Was it a mistake to develop export-oriented industries that suffered much from shrinking EU markets? The region s specialization and export orientation should not be devalued There was not alternative, but future strategies should focus on diversifying exports in terms of sectors (especially services) and markets Growth potential of export shares within EU largely exploited Recovery in the EU will the sluggish Strong export-orientation in manufacturing has important implications - Strong pressure to preserve international (cost) competitiveness - Cost advantages can erode quickly - Competitiveness will have to be based on productivity rather than costs going forward Page 17

18 Has it been an advantage to be in the Eurozone? Benefits of EMU membership not straightforward EMU a shelter in terms of relative currency and capital (in)flow stability as well as the pass-through of low interest rates EMU no quick fix to economic vulnerabilities, joining EMU not an optimal strategy at every point in time, without sustainable convergence EMU entry might turn even out as suboptimal strategy (e.g. currency devaluation no option as shock absorber) EMU membership has not necessarily supported sustainable fiscal policy, painful price signals of bond markets had been muted before the global crisis Recent (market) events inside the EMU are a good reminder that membership does not shield from sovereign risks Page 18

19 Has it been an advantage to be in the Eurozone? Two countries, with different reactions to falling interest rates Is a turnaround easier in- or outside the EMU? GR public debt, % of GDP (left) HU public debt, % of GDP (left) GR long-term int. rates, % (right) HU long-term int. rates, % (right) GR public debt, % of GDP (left) HU public debt, % of GDP (left) GR long-term int. rates, % (right) HU long-term int. rates, % (right) Sources: OECD, Eurostat, DB Research Sources: OECD, Eurostat, DB Research Page 19

20 Has it been an advantage to be in the Eurozone? EMU not essential for FX stability 24=1, negative slope = appreciation, positive slope = depreciation F 11F EUR/CZK EUR/HUF EUR/PLN EUR/SKK Source: ECB, DB Research REER adjustment difficult with limited nominal FX flexibility 25= GR PT SK CZ HU PL Source: OECD, DB Research Page 2

21 Has it been an advantage to be in the Eurozone? EMU: No one size fits it all long-term interest rate Long-term government bond yields, % F 11F CZ EA SK SI GR IL PL Sources: ECB, OECD, DB Research Substantial long-term benefits of a well-prepared EMU entry depending on vulnerability to currency risks, competitiveness position and Maastricht fitness but incentives to join decreased - Monetary stability and low interest rates can be preserved outside EMU - Securing outside help (IMF & EU) easier as non member (HU vs. GR) - Challenging sovereign debt outlook in major EMU countries Page 21

22 Will western banks be able to support their CEE subsidiaries? Banking sector deleveraging underway... CZ RU PL HU KZ UA RO BG LT EE LV Foreign liabilities in % of total assets (Dec 8) Foreign liabilities in % of total assets (Dec 9) Sources: National central banks, DB Research... but no widespread retrenchment of Western banks International claims, BIS reporting banks, Q3 29/Q3 28, % BG PL HU RO CZ LT EE UA LV KZ RU Sources: BIS, DB Research Page 22

23 Will western banks be able to support their CEE subsidiaries? Declining bank lending to private non-financial sector % yoy Strong setback in bank lending in the context of the global crisis Currently, no indications of a credit crunch, demand for credit is low Q2 8 Q3 8 Q4 8 Q1 9 Q2 9 Q3 9 Q4 9 CZ HU PL SK BG RO Baltics But funding to remain a growth constraint in the years to come Sources: ECB, national central banks Page 23

24 Will western banks be able to support their CEE subsidiaries? Not meaningful recovery of int. bank lending up to now International claims, BIS reporting banks, % change qoq Mar 7 Aug 7 Jan 8 Jun 8 Nov 8 Apr 9 Sep 9 Developed countries Asia & Pacific (without KZ) Latin America/Caribbean Eastern Europe (without TR, RU, UA) Eastern Europe (without TR, with RU, UA, KZ) Source: BIS, DB Research Constraints to ECB's ability to exit from extraordinary (liquidity) measures increased DB expects first ECB rate hike in March 211, banking sectors in CEE to profit as free riders Nevertheless, the crisis has shown that keeping exposure does not mean strong expansion and currently, other EM regions are doing better in attracting crossborder banking flows Page 24

25 Agenda 1 After crisis year 29, 21 remains challenging 2 Some comments on recent eye-catchers in CEE 3 Summary & Outlook

26 3 Summary & Outlook Multiple speed recovery in 21 country & banking sector differentiation to remain in place in CEE Structurally driven contraction/stagnation in the real economy and the banking sector will continue in some CEE countries Increasing differentiation between self-funding markets & market segments vs. externally financed markets & market segments Public debt challenge in the EU-15 & EMU may have a significant impact on CEE and CEE financial markets Low debt public debt levels in CEE (relative to EU-15, not EMs!) should be preserved as comparative advantage Page 26

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