Emerging European economies resilient in the face of the global recession

Wednesday, 14 October 2009 10:50

The resilience of the underlying economies in Emerging Europe has been one of the more positive surprises to come out of the global recession. Matthias Siller, manager of Baring Emerging Europe plc (BEE) says, “During the recent results season, earnings across the Emerging Europe universe generally beat expectations. At the same time, the economic growth outlook for the region has been revised up. Indeed, it looks as though some parts of Emerging Europe, specifically Poland, central Europe’s largest economy, will not shrink in 2009.”

Matthias explains: “The Emerging European economies are strengthening in part due to the massive monetary stimulus in markets across the region. Since late 2008, Turkish interest rates have been cut dramatically and interest rates in Central Europe have also fallen, albeit not to the same extent. In Russia, interest rates have been slashed recently. Importantly, whilst these economies were fighting significant global headwinds, domestic governments, particularly the Russian government, had the money to spend on economic support initiatives.

“A buoyant export sector and domestic market also add to the region’s resilience. The export sector has improved due to Germany’s quick economic recovery (much of Central Europe’s export industry is focused on Germany) and the continuous opportunities arising from the urbanisation of China. We expect those sectors relying on exports to experience volatility in the short term but the long term story remains promising.”

Matthias continues: “The domestic market in the Emerging European region is also proving resilient. Whilst consumers in the West are over-burdened with debt, the situation across most of our investment universe is completely different. Consumers in Central and Eastern Europe carry a fraction of the level of debt of their western counterparts. Furthermore, consumption has held up quite well during the crisis; consumers may be down but they are definitely not out.”