Nomura Emerging Markets Research 32012 EEMEA Economics and Strategy Outlook6 December 2011
Economics Outlook 2012 Peter Attard Montalto
Tethered by deleveraging
No country is likely to escape the multiple, common shocks hitting EEMEA through 2012, but many idiosyncrasies between the countries will likely ensure a quite differentiated outcome.
The list of influences on Emerging Europe next year are similar to those in 2008 and 2009 tobegin with: a recession in the eurozone, the banking sector and financial linkages weighing ongrowth too, and financial market linkages tying in global risk aversion. However, the present isactually very different from 2008-09, as the list of influencing factors is getting bigger: externallyforced deleveraging, the increased likelihood of a break-up of the eurozone, a loss of theconvergence anchor (in both the policy outlook and for the markets) and a more constrainedpolicy dynamic (both monetary and fiscal).The starting point for Emerging Europe, Middle East and Africa (EEMEA) countries in 2012 isdifferent from 2009, even though these shocks appear (and probably are) much sharper. 2009for EEMEA was about domestic risks, the crisis starting with much bigger imbalances,overvalued currencies and domestic vulnerabilities and resulting in IMF programmes,imbalances and unsustainability in certain countries in the region. Then, the global growth shockemanating from the US financial system exposed the weaknesses in the region. The situationnow is very much about external shocks, especially deleveraging.Countries have had only a short amount of time to get their houses in order in the last threeyears. Some, such as Poland, have done little until now. Some, such as Hungary, used theappearance of a sustained recovery to embark on unorthodox measures. Some, such as Turkey,made (moderately) successful attempts to use postmodern monetary (and tight fiscal) policy tokick-start rebalancing. Others have used mixed processes; South Africa comes to mind
itscyclical current account deficit is shrinking, whilst its fiscal policy is moving in the oppositedirection. In sum, the region, with lower imbalances, has stronger initial conditions than in thepast, but the shocks are potentially bigger, beyond their control and more structural in nature.However, against this backdrop we see growth in the region as a whole only dipping back to2.2% in 2012 from 4.3% in 2011. The drop is limited because of continued growth in the US andAsia in particular, as well as momentum in domestic demand in the large economies such asPoland and Turkey
both are entering this global slowdown without a significant backlog ofinventories and substantial base effects for net exports (to counter some consumption andinvestment slowdown). That said, we would highlight that the risks to the outlook (in all areas,not just growth) are very much skewed to the downside with a wide variance of downsidescenarios (see Box:
Breakdown on the doorstep
). This is led particularly by the risks of lowergrowth outside Europe (because our eurozone economists have already moved quickly to factorin a meaningful recession) with the financial and deleveraging risks in the eurozone alsoinfluencing this view. Despite this, the region is far from homogeneous and each economy islikely to perform very differently depending on its individual exposure to the above risk factors.Monetary and fiscal policies are the key area of differentiation. In 2008 and 2009 there was acommon loosening of policy in almost all countries (except Hungary), whereas currently the
EEMEA is facingeven more potentialshocks than in 2008/9But this time aroundis very much aboutexternal shocksEEMEA countrieshave taken differentcourses post-crisisGrowth risks for 2012are skewed to thedownside
Figure 1. GDP forecasts for 2012 vs 2009 Figure 2. Trade exposure to the Eurozone
-10-8-6-4-20246POISSACZTUHURU2009 Real GDP % y-o-y2012 Forecast Real GDP % y-o-y% y-o-y
01020304050607080CZPOHUROTUISSAEurozone exposure (% totalexports)Openness (% GDP)
Source: Nomura Global Economics. Source: Nomura Global Economics.