Numbers

October is a month of statistics, as several international financial institutions (IFIs) release their autumn outlooks. The influence of IFIs and international organisations in general has increased a lot during the last two years as they have provided crucial financing, opinions and advice on the financial and economic crisis and recovery. There is a plethora of organisations, but the G20 has arguably grown to be the most important in terms of policy-making, although it has no or very limited human or financial resources. It has delegated much of the implementation to the IMF, which has therefore grown even more important. Regionally, the European Bank for Reconstruction and Development (EBRD), which was regarded as a rather bureaucratic and slow investor prior to the crisis, has been reinvigorated. Not only due to its financing capabilities but also because of the role it played to avoid a systemic banking crisis in Eastern Europe in 2009. So, it is fair to say that the market now pays more attention to the forecasts and the analyses made by these institutions.

End of Coordination?

We argued last month that Eastern European equity markets to a large extent are driven by the global development but that it is difficult to find a clear trend for the world economy, which causes a lot of uncertainty on the financial markets. This is still the case, but one important implication of the diverging trends is that the strongly coordinated global economic policy action that we have got used to during the past two years is losing momentum. The G20 meeting in April 2009 was probably the high point, but the EU/IMF bailout package this spring was also an important achievement, although it may be argued that it came too late. It is not that there is no need for coordination on important issues or a lack of proposals, but the political will is arguably not as strong today as it used to be. The issues are more complex though, and the sense of urgency has decreased. The talks of a currency war – the debate about the strength of currencies that has intensified lately – is worrying, and the main players seem more inclined to blame one another than find solutions. In particular, the focus is on China and the need to revalue the yuan, a discussion that so far has yielded little progress.

Growth Surprises and Drivers Are Changing in Eastern Europe

Growth across Eastern Europe, and in Russia in particular, has been surprising on the upside, and the domestic demand story is gradually coming back. The upward revision of Russian economic growth continues, and the consensus is getting close to our forecast of 5%. Recently, the World Bank increased their forecast by approximately two percentage points, to 5-5.5% for 2010, and Bank of America/Merrill Lynch set the highest estimates last week, at 7%. Some institutions, most notably the IMF and some Austrian banks, still have fairly conservative forecasts for this year, but this is probably mostly due to lagging revisions. As a matter of fact, the IMF will present their spring forecast in late April, and it would be surprising if they did not continue to upgrade the growth estimate for this year (see chart below). A similar, albeit not as dramatic, trend is evident elsewhere in the region.

Recovering Markets

At the beginning of a new year it makes sense to look both back and forward. Last year was characterised by an extraordinary recovery on the equity markets in Eastern Europe, most markets have recorded triple digit gains since their respective bottoms. The recovery should, however, be viewed with the dramatic correction in 2008 in mind.

A New Normal for Eastern Europe

Most countries in Eastern Europe recorded almost unprecedented economic contraction and market recoveries while celebrating the twenty year anniversary of the fall of the Berlin Wall. It may therefore seem a little far-fetched to argue that Eastern Europe is normalising at the end of one of the most extraordinary years since the transition process started. […]

Rapid Revision

Most economic growth forecasts were so spectacularly off the mark during the financial crisis, that many pundits have asked if economists and the entire dismal science are of any use at all! While leaving that specific question aside, it may be worth pointing out that economists run the risk of making the same mistake all […]

Summer Vigour

After having corrected somewhat in June, stock markets across Eastern Europe developed very positively in July. But the picture is not uniform and a few interesting observations emerge when analyzing the performance during the past month and the first half of the year. The most obvious conclusion is that Turkey outperformed during the first half […]

Dismissing Decoupling and Deleveraging

Decoupling was the most popular catchword among emerging market experts a year ago. But as deleveraging, another popular buzz word, brought much of the emerging world to its knees, even the staunchest supporters of the idea that emerging and developing economies were no longer dependent on the development in mature economies began to doubt. The […]

Converted Bulls or Convinced Bears?

Economic development and financial markets are closely related, but do not always move in tandem. Markets normally respond to the underlying economic situation and tend to price in the news rather quickly, which is why the market is often assumed to be ahead of the economy. This phenomenon is more evident than ever at turning […]