Slide 1 / 21.04.23
“Efectele crizei economice in Europa Centrala si de Est - ce diferentiaza
România?”
Ionut DUMITRU, Economist-sef Raiffeisen Bank
Slide 2 / 21.04.23
Contraction size factors
Degree of dependence on external financing;
Degree of trade openness;
Export structure;
Exchange rate regime;
Size of macroeconomic imbalances;
Reliance of growth on cycle-sensitive and volatile sectors (construction,
cars);
Countries with the largest macroeconomic imbalances (especially current
account deficits and inflation) and high dependence of commercial banks
on external liabilities have seen the largest economic adjustments in
2009.
Slide 3 / 21.04.23
The regional context:Economic activity decelerated rapidly in all CEE countries
Source: Eurostat, IMF, Raiffeisen RESEARCH
High external funding needs
and
Low inflows of foreign capitals
Depreciation pressures for local currencies
Sharp fall in domestic demand (consumption and investments)
Increase in unemployment rate Freeze of lending activities
Overheated economies which relied in a large extent on external financing suffered the most !
GDP, consumption and investments: H1 09 vs. H1 08 (% yoy)
-40
-30
-20
-10
0
10
PL BG CZ EA SK HU RO EE LT LV
GDP (% yoy) Consumption (% yoy) Investments (% yoy)
-30
-25
-20
-15
-10
-5
0
5
PL CZ SK HU BG RO LT EE LV
Domestic private demand (% yoy in H1 2009)
Current account balance in 2007 (% of GDP)
C/A deficit in 2007 and change in domestic private demand (H1 09 vs. H1 08 in %)
Slide 4 / 21.04.23
Dependence on external funding – the main vulnerability The high current account deficit was the main macroeconomic
disequilibrium; The CA deficit fuelled the dependence on external funding;
But Romania was better positioned than other new EU member countries in terms of external funding dependence.
Current account deficit (% of GDP, 2008 Q4)
External funding dependence (% of GDP, 2008 Q4)
Note: Positive values denotes expected external outflows in the next year which requires funding
Source: EUROSTAT, JEDH, Raiffeisen RESEARCH
-5.6
-12.3
-25
-20
-15
-10
-5
0
5
LV BG LT HU RO EE SK PL CZ
Current account + Net FDIs (% of GDP)
Current account deficit (% of GDP)
0
10
20
30
40
50
60
70
80
BG LV EE HU LT SK RO PL CZ
Curent account balance + Short term external debt (% of GDP)
Curent account balance + FDIs + Short term external debt (% of GDP)
Slide 5 / 21.04.23
The regional context:Foreign capital inflows in CEE countries slowed down
External debt of private sector increased rapidly in last years
However, credit inflows slowed down substantially in last three quarters (stock of debt decreased in most of the countries)
Romania was not the most affected: stock of the private external debt has decreased, but in a less extent that in other countries
Dynamics of private external debt (% of GDP)
Source: World Bank, websites of central banks, Raiffeisen RESEARCH
Net inward FDIs in H1 09 vs H1 08 (EUR mn)
Change in stock of private external debt (Q2 09 vs Q4 08, %)
FDI inflows decreased also substantially in the first half of 2009
Romania was not the most affected:
Romania still recorded positive net FDI’s in 2009 (EUR 3.1 bn in Jan-July )
Contraction rate (-48% yoy in Jan-Jul) was the lowest as compared with other CEE countries
LV EE LT CZ RO HU BG PL-9.2 -6.9 -5.0 -4.1 -1.9 -0.2 0.7 10.7
0
20
40
60
80
100
120
140
Q2 07 Q4 07 Q2 08 Q4 08 Q2 09
RO CZ LT LV EE HU PL BG
-1000
0
1000
2000
3000
4000
5000
6000
7000
LV HU EE BG CZ PL RO LT SK
FDI inflows in H1 2008 (EUR mn) FDI inflows in H1 2009 (EUR mn)
10500
-76% -52% -52% -44% -41% -13%
Slide 6 / 21.04.23
Fast increase in external debt in last years, but good coverage with international reserves In spite of rapid increase from last years, external debt is still at a low level;
Large and very comfortable FX official reserves.
External debt, public and private sector (% of GDP, 2008)
FX reserves (% of country’s expected outflows, 2008)
Source: EUROSTAT, JEDH, Raiffeisen RESEARCH Note: External debt service = Short-term external debt (initial maturity) + +15% of long-term external debt (initial maturity)
0
20
40
60
80
100
120
140
160
HU LV EE BG LT SK RO PL CZ
Total external debt (% of GDP)
Short-term external debt (% of GDP)
-10
10
30
50
70
90
110
LV EE LT BG HU PL RO CZ
FX reserves (% of external debt service + C/ A deficit)
FX reserves (% of external debt service)
Slide 7 / 21.04.23
Most of CEE economies have a high degree of economic openness
Total exports (% of GDP) Total exports (% of GDP, 2008)
Note: CEE countries inludes Czeck Republic, Slovakia, Poland, Hungary, Romania, Bulgaria
Source: IMF, Eurostat, Raiffeisen RESEARCH
20
25
30
35
40
45
50
55
60
1994 1996 1998 2000 2002 2004 2006 2008
CEE countries Euro area Romania
2008
Romania 30.9
Poland 39.8
Bulgaria 60.5
Czech Republic 76.8
Hungary 81.4
Slovak Republic 82.6
CEE 53.8
Euro area 41.3
Exports account for a large share of GDP in case of most CEE countries– Large dependence on the external markets (especially Euro zone)
Romania and Poland, the largest CEE countries, depend in a less extent on the exports
Slide 8 / 21.04.23
High external debt of the banking sector, but better positioned than other NMS countries External debt of the banking sector is important, as banks had to take funds
from abroad in order to extend loans in FCY (more attractive for households and companies);
Romania is better positioned that other new EU member countries.
External debt of banking system (% of GDP, 2008 Q3)
External liabilities of banking sector (2008 Q3)
0
15
30
45
60
75
90
LV EE HU LT BG SK RO CZ PL UA RU
External debt of banking system (% of GDP)
Short-term external debt of banking system (% of GDP)
0
10
20
30
40
50
60
70
80
90
LV EE LT HU BG RO SK CZ PL
External liabilities of baking sector (% of GDP)
External liabilities of baking sector (% of total banking assets)
Source: EUROSTAT, JEDH, ECB, Raiffeisen RESEARCH
Slide 9 / 21.04.23
The regional context:Exports and imports slumped
Imports and domestic private demand
Source: Eurostat , Raiffeisen RESEARCH
Value of exports in Jan-Sep 2009 (% yoy)
Sharp contraction in domestic activity triggered a plunge in imports
Imports fell the most in overheated economies
Romania recorded the fourth highest contraction rate among the new EU member countries in Jan-Sep 2009
Fall in external demand triggered a sharp decrease in exports also
Romania recorded the lowest contraction rate among the new EU member countries in Jan-Sep 2009
-18.2
-35
-30
-25
-20
-15
-10
-5
0
LT LV EE BG HU CZ PL SK RO
-35.0
-45
-40
-35
-30
-25
-20
-15
-10
-5
0
5
LT LV EE RO BG PL HU SK CZ
Imports (Jan-Sep, % yoy) Private demand in H1 2009 (% yoy)
Slide 10 / 21.04.23
The regional context:Economic activity moved close to the bottom
Source: Eurostat , Raiffeisen RESEARCH
Economic Sentiment Index (ESI)
(3 months moving average)
Level of industrial output
(2008 H1 =100, 3 months average)
Industrial output in Jan-Sep (% yoy)
It seems that economic activity is close to the bottom:
After sharp falls at the end of 2008 – beginning of 2009, the industrial output started to recover in most of the countries
Economic sentiment indexes improved over the last months
Performance of Romanian industrial sector was much better than all other CEE countries except Poland
-8.5
-30
-25
-20
-15
-10
-5
0
EE HU LV SK BG LT CZ RO PL
65
75
85
95
105
Sep-07 Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09
BG CZ EE HU LT
LV PL RO SK
20
40
60
80
100
120
May-08 Nov-08 May-09 Nov-09
BG CZ HU EE LV
LT PL SK RO
Slide 11 / 21.04.23
The regional context:Unemployment rates have increased
Source: Eurostat, ANOFM, Raiffeisen RESEARCH
Unemployment rates have increased rapidly in last year, especially in Baltic countries
In case of Romania, increase in harmonized unemployment rate was low. However, the recorded unemployment rate (based on officially recorded unemployment) increased faster.
Latest unemployment rates (Eurostat harmonized methodology, ILO)
Change in unemployment rate from June 2008
For Romania, both ILO rate and recorded unemployment rate:
- ILO rate at 6.4% in Q2 2009
- Recorded unemployment rate at 7.2% in Oct 2009
6.47.2
0
4
8
12
16
20
RO CZ
(Sep)
BG
(Sep)
PL
(Sep)
HU
(Sep)
EA
(Sep)
SK
(Sep)
EE
(Jun)
LT
(Jun)
LV
(Sep)
Harmonized unemployment rate (ILO, %)
Romania: recorded unemployment rate (%)
0.7
3.2
0
2
4
6
8
10
12
14
RO CZ
(Sep)
BG
(Sep)
PL
(Sep)
HU
(Sep)
EA
(Sep)
SK
(Sep)
EE
(Jun)
LT
(Jun)
LV
(Sep)
Slide 12 / 21.04.23
The regional context:Some of the countries asked for external financing packages
External financing packages agreed with the IMF
In March, Romania secured a 2-year external financing package amounting to EUR 20 bn
The package covers external financing gap for 2009 and 2010
Source: World Bank, IMF , Raiffeisen RESEARCH
External financing package for Romania
Facing with high external debt service and expected lower inflows of foreign capitals, some of the new EU member countries (Latvia, Hungary, and Romania) asked and received financial assistance form the European Commission and the International Monetary Fund
to limit the pressures for currency depreciation (Hungary, Romania)
to smooth the economic adjustment
External debt of public sector replaced external debt of private sector
Hungary, Latvia and Romania received also financial assistancefrom the European Commission and World Bank
Slide 13 / 21.04.23
The regional context:Sentiment of investors improved in last months
Source: Bloomberg , NBR, Raiffeisen RESEARCH
Regional exchange rates
All regional currencies depreciated at the end of 2008 – beginning of 2009, while CDS quotations increased also.
However, starting February the investors’ sentiment improved and part of the losses were recovered
In 2009, the leu was much stable than the other floating regional currencies:
Interventions of central bank in the FX market
Tight control of central bank over the liquidity in the money market
Lower trading volumes in the FX market
CDS quotations, 5 years, USD segment
85
90
95
100
105
110
115
120
125
130
135
Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09
EUR/ HUF EUR/ PLN
EUR/ CZK EUR/ RON
0
200
400
600
800
1000
1200
Sep-
08
Oct
-08
Nov
-08
Dec
-08
Jan-
09
Feb-
09
Mar
-09
Apr
-09
May
-09
Jun-
09
Jul-09
Aug
-09
Sep-
09
Oct
-09
Nov
-09
Hungary Poland Czech Republic Bulgaria
Latvia Lithuania Estonia Romania
Slide 14 / 21.04.23
-8.0
-6.5
-5.0
-3.5
-2.0
-0.5
1.0
2.5
4.0
5.5Fi
nlan
dD
enm
ark
Swee
den
Luxe
mbu
rgBu
lgar
iaC
ypru
sN
ethe
rland
sG
erm
any
Aus
tria
Belg
ium
Slov
enia
Euro
zone
Cze
ch R
epub
licSl
ovak
iaIta
lyEU
-27
Port
ugal
Esto
nia
Lith
uani
aFr
ance
Hun
gary
Pola
ndSp
ain
Latv
iaM
alta UK
Rom
ania
Irel
and
Gre
ece
-5-4-3-2-101234567
Budget deficit (% of GDP) Economic growth (%, rhs)
Budget deficit vs economic growth in 2008
Slide 15 / 21.04.23
Main macroeconomic indicators, 2008
TotalShort term
%%, annual average
% of GDP % of GDP% of GDP
% of GDP % of GDPmonths of imports
Bulgaria 6.0 12.0 -25.3 115.2 107.7 38.9 14.1 5.0Czech Republic 2.5 6.3 -3.1 130.3 38.9 12.5 29.8 3.0Estonia -3.6 10.6 -9.2 119.3 120.2 46.6 4.8 2.7Hungary 0.6 6.0 -8.4 137.2 113.3 17.5 73.0 3.4Latvia -4.6 15.3 -12.7 73.0 128.5 43.0 19.5 3.4Lithuania 2.8 11.1 -1.6 111.1 71.4 24.1 15.6 2.3Poland 5.0 4.2 -5.5 71.0 47.5 12.7 47.1 3.2Romania 6.2 7.9 -12.3 62.6 53.4 15.9 13.6 5.3Slovakia 6.2 4.6 -6.3 152.8 55.1 na 29.2 naSlovenia 3.5 5.7 -6.2 130.3 105.3 na 22.8 na
Public debt
Foreign international
reserves
External debtReal GDP
Inflation rateCurrent account deficit
Openness of the economy