ERPF March Factsheet Now Available
If correct, with some CEE Countries more reliant on FDI from Western Economies than others, the rate of recovery in these western markets will be keenly awaited by those countries less able to export their way out of trouble.
With Romania cutting interest rates this month (50bps to 6%) when some other countries elsewhere have begun to withdraw stimulus measures, this latest cut does reflect the depth of the recession in this country. Indeed, Capital Economics believes that Romanian rates have further to fall. Also, with a fragile banking sector this will ensure that credit remains tight in Romania (despite cuts in official interest rates and a substantial slack in the labour market keeping a lid on underlying wage growth).
Meanwhile, a proposed fiscal contraction of c 2.0% of GDP will also hit Romania this year. Also, with a high proportion of foreign currency denominated debt, the Romanian policymakers must keep a close eye on the exchange rate. Little wonder why the Central Bank of Romania has cut interest rates at a more cautious pace than many European peers.
So in Romania the pace of recovery still looks set to disappoint and Capital Economics forecasts very modest growth in Romania in 2010.
In Poland, the Capital Economics latest estimates for 2009 shows this economy as the only one in the EU expanding last year at +1.7% year on year. This estimate appears consistent with a growth of over 2% in Q4 2009. Reasons for this growth are likely to be a pick up in the inventory cycle, rise in annual retail sales and a recovery in the industrial sector. This said, whilst Poland is undoubtedly one of the CEE region?s healthiest economies, it still faces a number of headwinds. Nominal wage growth fell back to 0.5% year on year in January 2010 and the recently announced fiscal squeeze, aimed at reducing the government?s fiscal deficit, will also weigh on growth in the near-term.
Finally, the fall out from the Greek debt crisis rumbles on with deep political divide as to how and who should support Greece through these difficulties. Indeed some economic observers are beginning to predict that if the EU does not agree a rescue package soon, the fall out could affect the EU monetary union.
More information is available in the ERPF March 2010 Factsheet
