…courtesy of Credit Suisse’s Andrew Garthwaite.
(1) There has been an extreme increase in EMEA (ex Russia) leverage over the past decade. This was funded largely by foreign debt as shown by the deterioration in the region’s current account position (from a surplus of nearly 6% of GDP to deficit of – 6% in 2008; slide 2).
(2) Net foreign debt to GDP in the region varies from 25% (Ukraine) to 100% (Hungary)- slide 3. Total net foreign liabilities for EMEA ex Russia are around $1tn. Around $200bn of foreign debt is due this year.
(3) To us the Eastern European situation appears worse than the Asian crisis. The Asian economies were more flexible and there was much less of a synchronized downturn across the global economy than there is now and thus the Asian countries could export their way out of trouble. Additionally, the IMF and World Bank had more money available for support packages. Our economists have revised down their forecast
for EMEA from 1.6% to 0.4% for 2009 — and in Hungary, Turkey and Ukraine they are forecasting an outright contraction in GDP.
(4) We would note that Eastern Europe has not underperformed global equities by nearly as much (20%) as Asia did in the late 1990s (70%; slide 5)
(5) EMEA is not cheap when we look at the price-to-book of EMEA ex Russia relative to GEM (which is still nearly one standard deviation above its long-term average), as shown on slide 5.
And here is slide 5.
And here is another interesting graphic. It is a country vulnerability scorecard which ranks CEE countries on a number of criteria, the most important of which according to Garthwaite are current account position and net foreign assets.
Related links:
CEE under heavy fire – FT Alphaville
Another Eastern European meltdown – FT Alphaville