Eastern European economic growth to crater in 2009

This comes via Angus Robertson over at Research Recap:

Fitch Ratings forecasts that Emerging Europe (EE) will suffer its steepest fall in real GDP since the collapse of the Communist planned economic system in the early 1990s, reflecting the severity of the trade and financial shocks that have hit the region. However, the aggregate forecasts conceal a wide range in growth prospects across the region.

Fitch forecasts GDP growth to contract by 3.1% this year in Emerging Europe: a severe and abrupt recession after growth of 4% in 2008 and an average of 6.8% in the five years to 2007.

Moreover, it expects only a modest recovery of 1.4% in 2010, insufficient to prevent further rises in unemployment and pressure on public finances.

Fitch notes that the divergence in growth prospects this year – from +2.5% in Azerbaijan, to (minus) – 12% in Latvia – underlines the need to differentiate between countries rather than treat EE as a homogenous block, as reflected in different sovereign rating levels and rating actions since the onset of the global financial crisis. The agency has downgraded the sovereign ratings of 10 countries in EE, by a total of 14 notches, since August 2008. Ten countries are now on Negative Outlooks and none on Positive Outlooks.

According to Fitch, the economies most exposed to the dramatic decline in global trade and financial flows and ‘deleveraging’ process are Hungary (’BBB’/Negative Outlook) and Kazakhstan (’BBB-’ (BBB minus) on Rating Watch Negative), while Poland (’A’/Stable Outlook) and Turkey (’BB-’ (BB minus)/Stable Outlook) are least exposed, albeit not immune, to these shocks.

Out of 21 countries it covers in the region, Fitch forecasts GDP to contract in 19 of them, be flat in one and grow in only one. Of the largest economies, Fitch forecasts both Russia and Turkey to shrink by 3% and growth to be 0% in Poland.

“Most countries will be adversely affected by deleveraging and see a sharp slowdown or reversal of private capital inflows and credit growth Those with large current account deficits, high bank loan/deposit ratios and/or dependence on foreign financing – particularly the Baltic and Balkan states, as well as Hungary, Kazakhstan and Ukraine – will suffer falls in domestic demand as they have to rapidly correct macroeconomic imbalances. In some countries, difficulties will be compounded by a drop in asset prices and the presence of foreign-currency debt on balance sheets.”

Angus has a nice chart on historical GDP growth as well. If you’re interested in Eastern Europe, you should definitely read Edward Hugh’s in-depth analysis of Estonia, “How Not To Convince People You Are Capable Of Having An Internal “Devaluation”.” It makes for sobering reading.

Emerging Europe GDP to Contract 3.1% This Year – Angus Robertson

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