4.8.09

Unemployment can be a factor of another wave of global recession


Another dream is shattered. Green jobs will not produce enough jobs to counteract against dramatic unemployment. An excellent article in Forbes is a great and needed lesson for Poland as well.

Indeed a recent study by Sam Sherraden at the center-left New America Foundation finds that, for the most part, green jobs constitute a negligible factor in employment--and will continue to do so for the foreseeable future. Policymakers, he warns, should avoid "overpromising about the jobs and investment we can expect from government spending to support the green economy."

Here is also interesting study on the subject. (In the meantime, behind western Polish border propaganda on green jobs (
No other country in the world has better conditions to become the world's top supplier for machines and products that save energy) is booming during electoral battle between Merkel and Steinmeier)

In the light of that, Nouriel Roubini's analysis becomes even more relevant. Few weeks ago he stated that global economy may fall into another recession because of rising government debt, higher oil prices and a lack of job growth.




Credit for picture belongs here

3.8.09

Unemployment growth threatens Poland?


Information about crisis and its effect on Eastern Europe is coming out very slowly. But yesterday news on Metro group, which owns chains of shops, emerged. And 17 000 people will be laid off. It is result of €15.3 billion ($21.8 billion) loss in sales in second quarter.
Obviously it will affect job market in Poland. All shops operated by Metro operate also in Poland.
Among them Saturn, MediaMarkt and Real.


Eastern European sales plunged by 11.6 percent on an uncorrected basis, but edged higher by 0.1 percent within the group's domestic German market. Metro did not give an outlook for the rest of the year, although
the company’s chairman, Eckhard Cordes said that "in view of the massive economic crisis Metro stood its ground well." The final result would depend on large part on development in slumping jobs markets, he added.

Picture: Centrum Handlowe Gdańsk-Osowa

Czech Republic after first wave of crisis becomes paradise for burgain-hunting

Czech Republic, weakened by crisis (country has seen a record number of bankruptcies this year) , is trying to portray itself still as a country of opportunities. Apparently real estate market seems to have good offers. More and more observers are putting attention to bad loans issue.

Investors may be interested in what left of economic storm in Czech Republic. And what is now sold
with 30 percent discount or more. Prague, not long ago the most expensive capital in Europe, now is becoming a center of distressed companies in region. Their problems with cash-flow are result of credit policy tightening by growing number of banks.

One may ask how immune Poland is to those problems? For how long?

Business Week published Bargain-Hunting in Eastern Europe by Adam Cardais.


Opportunity often blossoms out of disaster, and no investor wants to look back on the fallout from the global financial crisis as the missed opportunity of a lifetime.

In Central and Eastern Europe, with real estate prices and stock markets down—the Prague Stock Exchange has lost 31 percent of its value since July 2008—and many fundamentally healthy businesses hurting for financing to survive the downturn, now seems like the time to look for that opportunity. Business people and investment experts are quick to caution that the foundering economies of emerging Europe may yet hit bottom, but they also largely agree that the prudent, well-capitalized investor (it's hard to get a loan these days) could, as Jo Weaver of the marketing firm JWA Prague put it, "make some real killings."

Where to look? Larger players such as private equity firms should pay attention to the growing number of distressed companies in the region.

"In the last four or five months we have seen an increase in the number of bankrupt companies or companies that are having financial difficulties but have a good, healthy core business," said Margareta Krizova of the Central European Advisory Group, a legal and investment consultancy. "I think there is a real opportunity [here]."

Indeed, the crisis has spread from the financial to the corporate sector, sharply undercutting output in the last quarter of 2008 and in early 2009 with disastrous results for businesses, the European Bank for Reconstruction and Development (EBRD) reported in May. The Czech Republic, for instance, has seen a record number of bankruptcies this year.

Most at risk are small, export-based manufacturers with less than 20 million euros in annual turnover, according to Krizova. With credit markets tightening throughout the region, these companies "start to have cash-flow problems if they lose one or two customers" despite being fundamentally sound businesses, she said.

Automotive and metallurgical companies are especially hurting. Auto manufacturing is big business in Slovakia and the Czech Republic, but falling demand for these cars in Western Europe—and Germany in particular—is sending shock waves down the entire supply chain. Investors could snap up those companies already facing bankruptcy at fire sale prices, Krizova said, nurse them through the recession, and wind up owning thriving, if small, businesses a couple of years from now.

PRIME PROPERTY

For large and small investors alike, real estate looks promising. Commercial property prices in capitals from Prague all the way to Moscow are down double digits year-on-year, and regional yields—or the return on investment—average around 10 percent now and will likely continue north, according to a recent analysis by global real estate services firm CB Richard Ellis. Jos Tromp, the firm's head of research and consulting in Central and Eastern Europe, said Warsaw and Prague are the most stable markets, but that Budapest, where office space is 33 percent cheaper today than a year ago, "could be the potentially interesting opportunity" of 2009 though it presents a much higher risk, with Hungary's economy still rebuilding from near implosion late last year.

Residential real estate could also be a winner in the Czech Republic. Prices of flats increased 18 percent there in 2008, but the market is expected to reverse course this year, with prices falling as much as 20 percent, according to data from the Regional Information Institute.

Equities are, as usual, tricky. The Prague Stock Exchange is sagging while the Warsaw Stock Exchange seems to be rebounding after a tough 12 months. Ales Michl, a portfolio strategist at Raiffeisenbank in the Czech Republic, said markets remain volatile. Either you must time your purchases perfectly, he joked, or be smart—make regular, long-term investments in blue-chip stocks such as Czech electricity giant CEZ (CEZP.PR) or Spanish telecoms group Telefonica 02 (TEF).

Timing, though, is of course critical. With looming concern that rising volumes of bad loans could undermine New Europe's banks and foment a second financial crisis, as EBRD President Thomas Mirow warned 24 July, investors should be cautious. But they should also be strategizing—because others already are. JWA Prague's Weaver said that after six months of radio silence from potential investors this year—an unprecedented drought for a company that in a normal year does 10 to 15 business pitches a month between January and June—the lines are abuzz again, with multinationals and local companies seeking advice on entering or expanding in the Czech market.

In emerging Europe, as important as the when and where to invest is the how. Despite many countries' business-friendly rhetoric, all have formidable bureaucracies that, when it comes to transparency, vary only in their degree of opacity. If you have experience in Western Europe, don't assume business is done the same way east of the former Iron Curtain. Protect yourself and, most of all, be flexible. Good luck.

Serious troubles of European banks

Every time one finds information about downplaying problems of banks and in mainstream media praises about prosperous Polish economy one can be suspicious.

Today Polish representative at IMF said that Polish economy is in very good condition (growth 0.5 percent GDP) and it will get even better marks in autumn.

But apparently clouds are gathering over Eastern Europe as president of EBRD warned.
There are signs that Societe Generale can be in trouble because of its bad investment in Russia.

Jule Trener from The Faster Times explains in "Of Oligarchs, French Banks, and a Whole Pile of Problem Loans" elaborates on Societe Generale present situation.



It’s tempting to think that the banking crisis is behind us. Lehman is long gone; we’ve finished with the bailouts of 2008 and early 2009; the view that the US and Western European economies are stabilizing is becoming more widely endorsed. Yet, there are signs in Europe that we’ve entered a new stage. The metaphor may no longer be the “perfect storm”, but something more like slowly rising waters, as the effects of the financial crisis on the real economy trickle back through the income statements of French banks.


At the height of the global liquidity crisis, leveraged investors everywhere (meaning investors who borrow money to make money) suffered, as banks, eager to get their hands on whatever cash they could, withdrew financing. Between the crisis of confidence and the lack of cash, all manner of investment markets seized up—the commercial paper market, the municipal, corporate and convertible bond markets, the asset backed securities market, and so on. Investors facing margin calls were forced to sell their most liquid assets. And since few things are more liquid than commodities, every commodity, with the exception of gold, fell into a tizzy, as global demand for commodities collapsed. Oil went from the 130s to the 40s in a matter of weeks. But then western governments re-liquefied the banks, and after much de-leveraging, something like normalcy returned to many investment markets.

It was a catastrophe for resource exporters like Russia. One of the highest flyers of Eastern Europe and a major exporter of oil and gas and metals, the Russian economy suffered a heart-stopping deceleration, contracting 9.8% in the first half of 2009. At least for now, the Russian government seems to have beat back fears of a repeat of the ’98 ruble crisis. Except, as one would expect, once-profitable businesses there are failing in droves, and a new crisis in loan defaults is slowly enveloping the Russian banking system .

Now the wave is washing back over Western Europe. Western Banks are sitting on a mountain of problem Russian loans. Here’s how the Financial Times recently described the situation:

[Foreign banks] cannot afford writedowns on tens of billions of dollars in debts. They also fear that Russia’s bankruptcy courts would secure them returns of only cents on the dollar. As restructuring talks on more than $437bn in Russian foreign corporate debts drag on into the summer, the banks are sticking it out. “The huge European banks are holding loans that by any standards are in default. They need deals that are palatable to their constituencies,” says one of the seven senior western bankers interviewed for this article, who all spoke on condition of anonymity because of the sensitivity of the situation.

The article then goes on to quote an anonymous oligarch’s reworking of Keynes’ famous phrase: “If I can’t pay BNP [of France] $4bn, is it my problem or is it theirs?”

France’s two largest banks, BNP Paribas and Societé Générale, don’t break out their loan exposures in Russia, so it’s extremely difficult to know what impact the increase in non-performing loans will have on their businesses. The question is whether it could be significant enough to undermine their capital positions. Estimates of the size of the problem in Russia vary widely. At the low end, the official government line is that non-performing loans (NPLs), which began the year at 3% of total loans will grow to 12% by year-end. Marta Sánchez, banking analyst at Ahorro Corporación, who covers BNP and SocGen, also covers Intesa San Paulo, which is more forthcoming about its Russian exposure. She’s currently modeling a 20% NPL rate for the Italian bank, and says that’s a good proxy for the kind of losses the French banks could be facing in Russia. However, she told The Faster Times that she remains comfortable with BNP’s emerging markets position. As regards potential losses on their emerging markets business, “I don’t reckon BNP should need any further capital,” she said.

Unfortunately, the same can’t necessarily be said of Societé Générale. Among the major French banks, the group has the largest exposure to Central and Eastern Europe. What’s more, it bought Russian commercial bank Rosbank just before the onset of the financial crisis, for a price that raised a few eyebrows. According to Alain Dupuis, banking analyst at Oddo & Cie in Paris, SocGen has 16 billion Euros of exposure to Russia through its retail banking operations alone. He points out that if current European Bank for Reconstruction and Development estimates are correct, Russian NPL rates could meet the already steep levels of the Ukraine, where non-performing loans may reach 45%. That would make for a significant loss from a single source of business. But that, in and of itself, would not be large enough to shake the bank. “One of the things we learned in the financial crisis is that the French banks are diversified enough to withstand a hit in their individual businesses,” he told the Faster Times. The problem, as Mr. Dupuis sees it, is that a skyrocketing NPL rate in Russia wouldn’t be an isolated event, but would be accompanied by similar weakness across Eastern Europe. And combine that with weaknesses in its other businesses—SocGen has the largest portfolio of toxic credit derivatives of the major French banks, and has already pre-announced a 1.3 billion euro loss on it in the second quarter—and the picture starts to look more gloomy. “If you consider the risk profile of the group globally,” he adds, “it’s our view that their current level of tier one capital is not enough.”

We won’t know until the end of 2009 or 2010 the extent of the losses in Eastern Europe, but unless the situation improves, French banks could be in for a cold Russian winter.

2.8.09

Polish goverment is still dancing on Titanic?

Although Polish government is extremely optimistic about future of economy (especially Minister of Finance Rostowski) however observers around the world do not share that view. The RGE monitor of Nouriel Roubini is trying to awake from that siesta.

Among emerging market regions, CEE economies are experiencing the steepest roller-coaster ride in terms of growth. After exceeding global growth averages for the last decade, regional growth is plummeting in 2009 and is expected to underperform both emerging Asia and Latin America. All EU newcomers in the region are either in or headed for recession. A dangerous combination of falling exports and slowing capital inflows is behind the bleak growth picture. The hardest-hit economies have tended to be very open, with wide current account deficits in recent years and high levels of foreign currency borrowing.

Not all CEE economies are in the same boat. The Czech Republic and Poland, for example, are considered relatively healthy and are expected to experience relatively mild contractions in 2009. Those in more dire straits- Estonia, Latvia, Lithuania--are facing double-digit contractions. Hungary, Latvia, Romania and Serbia have already turned to the IMF for financial assistance, and more are likely to follow in their wake.

RGE Monitor points to the following as possible downside risks to regional growth:

- risk of regional financial contagion,

- potential for a cross-border banking crisis

- rising political instability

- repeat of January gas crisis

Given the strong financial and trade linkages with Western Europe, a recovery in Eastern Europe will not come until its western neighbors’ economies improve. That means the region’s recovery will lag behind that of Western Europe. Meanwhile, the downside risks described above could further delay recovery. And even when recovery comes, RGE expects sluggish positive growth in the medium-term, rather than a return to the soaring growth rates seen earlier this decade.

Previously chief of EBRD warned that recovery in Eastern Europe is strongly linked to western banks (ability and willingness) lending to their foreign units.

Bloomberg quotes him:
“The key is continued support from banks in Western Europe to their subsidiaries in the east,” Berglof said in an interview yesterday in London. “As long as those flows continue, that’s a very large part of the solution to the problem. The situation is manageable but we must make sure that it is being managed.”

He reportedly was very pessimistic:

In May, the EBRD forecast that the Central and Eastern European economies would contract by about 5.0 percent this year.

But the bank was about to release an even lower forecast, EBRD president Thomas Mirow said after meeting Austrian Finance Minister Josef Proell.

Unlike other institutions, the EBRD did not believe the crisis was over, Mirow said.

That news appears in media after the same EBRD president warned against next wave of crisis looming ahead of Eastern Europe.

Many of the once fast-growing ex-communist economies lately have been hit by collapsing demand and vanishing foreign investment flows, leaving large foreign-currency debts and current-account deficits. Already, many have turned to the IMF in the crisis, which so far has toppled governments in Latvia, Hungary and Bulgaria.

To prevent a recurrence, Mr. Mirow said Eastern European countries need to restructure private debt, reduce foreign-exchange exposure and adequately capitalize banks.

He cautioned that, although the region's economies have stabilized in recent months, the impact of the "unprecedented market crisis" still poses major risks. "This is a severe challenge which we must not underestimate, neither economically nor politically, and we must not allow a sense of complacency to take hold," he said.











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