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New Europe Weekly

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A helping hand from G20

Fri, Apr 3 2009, 12:14 GMT
by New Europe/EMEA Research

Danske Bank A/S

The result of the G20 meeting was a welcome surprise for emerging markets and we have seen most emerging markets rise on the back of the news coming out of the G20 meeting.

We think that three factors in particular are helpful for emerging markets in general and for Central and Eastern Europe in particular:

• The G20 have agreed to quadruple the IMF's financial capacity with a USD1trn commitment.
  
• International trade should get a boost from new funds to trade finance and trade credits.
• The G20 leaders want revive the Doha trade rounds.
  

Most important - at least in the short term - is the extra funds for the IMF. This is particularly positive for the Central and Eastern European economies, where a number of countries are struggling with serious funding problems. In our view, a lot of the new IMF funds will be spent in CEE. That said, new funds for the IMF also mean more countries are likely to show an interest in securing loans from the IMF - especially if these funds can be attainted with "softer" conditions than the IMF would normally demand.

Even though the G20 in general is positive for the CEE economies, the extra funds do not change the fact that we are likely to see a very sharp further correction in growth in the region to adjust the major external imbalances. Extra IMF funds will not help avoid a major correction in external imbalances in the region and the IMF will still demand significant fiscal adjustments to provide loans to the CEE countries. However, IMF funds should help to avoid a major funding crisis in the region.

Overall we think that the G20 meeting is good news for the CEE/EMEA in general and we therefore have adjusted our PLN, RON, CZK, HUF, ZAR and TRY forecasts in a slightly more positive direction as a direct consequence of the result of the G20 meeting.

Key events in the coming week

• Update on Polish government stance regarding ERM2 entry (see page 3).

• Czech statistical office is due to publish CPI inflation for March. We also give an update on the Czech political situation (see page 3).

• We focus on the inflation outlook for CEE countries (see page 4).

• We focus on inflation and the public budget situation in Baltics (see page 5).

• Current account deteriorates further in Russia, but improvement in sight in 2009. The World Bank and OECD have revised the GDP forecast for the Russian economy for this year in a more negative direction (see page 6).

• We give an update on Turkish politics following the general elections and progress in agreement with the IMF regarding the loan package (see page 7).

• We have adjusted our PLN, RON, CZK, HUF, ZAR and TRY forecasts in a more positive direction on the back of the G20 meeting (see FX update on page 8).

• Limited room for rate cuts in Hungary in the current climate (see Fixed income update on page 9).

• Download full New Europe Weekly with charts

Published on  Fri, Apr 3 2009, 12:21 GMT