By Michael Winfrey
VIENNA, Oct 24 (Reuters) - Emerging Central Europe's
economies have taken a hit from the triple threat of the global
slowdown, the credit crunch, and panic selling but policymakers
expect the region to survive without falling into recession.
Markets have plummeted and governments and central banks
have slashed growth forecasts, but even the worst off of
ex-communist Europe's biggest states, Hungary, should avoid the
economic contraction sweeping through the euro zone.
Central bankers and banking officials told the Reuters
Central Europe Investment Summit the region's banks were safe
from the toxic assets that sparked Iceland's economic crisis,
none had needed rescue, and they were generally well financed.
But that did not mean the region was free from risk, they
said, and they agreed forecasts could go out the window if
unforeseen circumstances like those that hit Iceland arise.
Federico Ghizzoni, Unicredit <CRDI.MI> board member for
Central and Eastern Europe, said the bank had cut its average
regional growth forecast to 3.5 percent for next year, from 5.5
percent, in line with official forecasts from individual states.
"It will be a combination of effects from the West and from
less lending available. A combination of the two will contribute
to reduced growth in those countries," he said at the summit.
NO RECESSION
Since Iceland's flirt with economic collapse, investor worry
has spread to the Baltics, Ukraine and Bulgaria and Romania,
where they fear big external gaps and the tight credit
environment could spark banking or balance of payments crises.
Worst hit in among central Europe's big ex-communist states
is Hungary -- already the laggard among peers Poland, the Czech
Republic, Slovakia and Romania -- although those countries'
markets have suffered too.
The government has slashed its 2009 growth forecast to 1.2
percent, from 3 percent previously, while the central bank is
preparing to revise its 2.6 percent prediction.
"Our 2009 (growth forecast) will definitely be revised
substantially to the downside," Hungarian deputy central bank
Governor Ferenc Karvalits told the summit. "Most probably in the
baseline scenario it will be a positive figure."
Investors have dumped Hungarian assets due to fears over its
high level of foreign debt exposure and a huge amount of loans
taken in foreign currencies by Hungarian consumers who may be
hard pressed to pay them back if the forint weakens too much.
The central bank hiked interest rates by 300 basis points on
Wednesday to try and halt panic selling that has sent the forint
currency tumbling almost 16 percent this month against the euro
and the bourse <> down 38 percent.
Karvalits said the bank would defend the forint if needed
but the main problem was psychological, not fundamental.
"The current risk perception of the markets regarding
Hungary is overplayed," he said.
In Poland, where the zloty currency is down 15.1 percent
versus the euro this month, Deputy Finance Minister Katarzyna
Zajdel-Kurowska said wrong perception of risks meant markets
were no longer paying attention to economic fundamentals.
"When analysts and traders see something in our region --
Ukraine and Hungary -- they make collective decisions and only
after they realise we're completely different," she said.
"So we need to calm emotions and go back to fundamentals.
And the fundamental story for Poland is still very solid."
For the Slovaks, an EU growth leader that joins the euro
zone on Jan. 1, the slowdown in the euro zone will damage the
engine of its economy as demand slows for the cars that it pumps
out of three foreign owned auto-plants.
But Martin Barto, deputy governor of the central bank, said
Slovakia will continue to boom, growing by 5 or 5.5 percent.
His Czech counterpart, Miroslav Singer, agreed that growth
there would slow too, but there was no chance of recession.
"We will simply go from a very nice growth to a moderate
growth scenario," he told the summit.
CREDIT RISK REMAINS
Another main risk yet to be made fully clear is how long a
virtual lock-down in interbank markets will persist and whether
cash hoarding by western investors and a lack of trust among
banks will shut of funds to consumers and firms.
Karen Burgess, the CEO of TVN <TVNN.WA>, Poland's
second-biggest television channel, said the credit squeeze was
showing up in sales of advertising to firms and caused the
company to take a wary approach.
"We have become more strict with our customers because we
don't know who will be adversely affected by liquidity
problems," she said. "The people who will be (first) hit are
producers. This will filter down to wholesale and retail."
Unicredit's Ghizzoni said the credit crisis has caused the
inflow of foreign currencies to freeze up and banks across the
region have begun to cut back on those types of loans.
He gave the example of Romanians who, loathe to take loans
in the lei currency because official interest rates are 10.25
percent, have financed home mortgages and other purchases with
debt denominated in Swiss Francs or euros.
"In some of these countries ... customers who are used to
taking Swiss francs don't in reality have an alternative," said
Ghizzoni. "My concern is that lending activity could stop for a
while."
