Turkey and Ukraine are more vulnerable to a repeat of the 2008 credit crisis than other nations in central and eastern Europe, the Middle East and Africa on concern their balance of payments will hurt financial stability, Goldman Sachs Group Inc. (GS) said.
Turkey has “accumulated substantial external imbalances” and an International Monetary Fund program has been sidelined in Ukraine, economists including Clemens Grafe and Ahmet Akarli said in an e-mailed report today. Russia would also be exposed, though “a more resilient banking system and increased ruble flexibility” should limit the impact, they said.
“Our analysis suggests there are marked financing risks in a number of CEEMEA economies should we see a repeat of ‘crisis- like’ stress conditions,” Goldman said. “The ‘stress-case’ scenario implies that Turkey and Ukraine may be relatively more vulnerable to potential balance of payments incidents.”
Turkey’s current account deficit, which widened to a record $72.5 billion in the 12 months through June, or about 9 percent of economic output, has brought losses for the lira of 13 percent this year, the biggest decline among more than 20 emerging markets tracked by Bloomberg. Meanwhile, in Ukraine, the IMF has delayed a visit planned for next week until October, pending a revamp of its pension system and steps to narrow the budget deficit.
‘More Abrupt’
In the event of external financial stress, the adjustment to Turkey’s current-account deficit “would have to be much more abrupt, leading to significant output losses, further lira weakness and possibly a fall in foreign exchange reserve levels,” Goldman said.
The lira was little at 1.7558 per dollar at 5:43 p.m. The main ISE National 100 share index in Istanbul rose 1.4 percent, trimming this year’s declined to 19 percent. The Ukrainian Equities Index (UX) fell 2.6 percent, extending this year’s retreat to 34 percent, making it the worst performer globally this year after the Cyprus General Market Index and Egypt’s EGX 30. Russia’s Micex rose 0.9 percent, paring its 2011 drop to 14 percent.
In Hungary, five-year credit default swaps, which measure the cost of insuring a country’s debt against default, have surged to the highest since April 2009, partly on concern that disagreements with the IMF leave the country more exposed to a financial shock.
“The breakdown in negotiations with the IMF means that the government will need to convince the markets of the credibility of its reforms and fiscal commitments; an unconvincing performance would increase the likelihood that the country would have to undergo another painful adjustment,” Goldman said.
South Africa
The external balances of Israel and Kazakhstan look more resilient, the report said. In South Africa, “the required current account adjustment is to a large extent generated by the existing moderate current account deficit,” Goldman said. “In addition, we would expect to see a relative outperformance of gold under a ‘back to 2008’ scenario.”
The majority of countries are in a stronger starting position when compared with mid-2008, with the excesses of a pre-2008 credit boom now tempered, the report said.
“Most of the countries are running either a current account surplus or a moderate deficit,” Goldman said. “The exceptions are Turkey and Poland, a by-product of the strong domestic demand-led recoveries of the past two years.”
Source: http://www.bloomberg.com
Turkey has “accumulated substantial external imbalances” and an International Monetary Fund program has been sidelined in Ukraine, economists including Clemens Grafe and Ahmet Akarli said in an e-mailed report today. Russia would also be exposed, though “a more resilient banking system and increased ruble flexibility” should limit the impact, they said.
“Our analysis suggests there are marked financing risks in a number of CEEMEA economies should we see a repeat of ‘crisis- like’ stress conditions,” Goldman said. “The ‘stress-case’ scenario implies that Turkey and Ukraine may be relatively more vulnerable to potential balance of payments incidents.”
Turkey’s current account deficit, which widened to a record $72.5 billion in the 12 months through June, or about 9 percent of economic output, has brought losses for the lira of 13 percent this year, the biggest decline among more than 20 emerging markets tracked by Bloomberg. Meanwhile, in Ukraine, the IMF has delayed a visit planned for next week until October, pending a revamp of its pension system and steps to narrow the budget deficit.
‘More Abrupt’
In the event of external financial stress, the adjustment to Turkey’s current-account deficit “would have to be much more abrupt, leading to significant output losses, further lira weakness and possibly a fall in foreign exchange reserve levels,” Goldman said.
The lira was little at 1.7558 per dollar at 5:43 p.m. The main ISE National 100 share index in Istanbul rose 1.4 percent, trimming this year’s declined to 19 percent. The Ukrainian Equities Index (UX) fell 2.6 percent, extending this year’s retreat to 34 percent, making it the worst performer globally this year after the Cyprus General Market Index and Egypt’s EGX 30. Russia’s Micex rose 0.9 percent, paring its 2011 drop to 14 percent.
In Hungary, five-year credit default swaps, which measure the cost of insuring a country’s debt against default, have surged to the highest since April 2009, partly on concern that disagreements with the IMF leave the country more exposed to a financial shock.
“The breakdown in negotiations with the IMF means that the government will need to convince the markets of the credibility of its reforms and fiscal commitments; an unconvincing performance would increase the likelihood that the country would have to undergo another painful adjustment,” Goldman said.
South Africa
The external balances of Israel and Kazakhstan look more resilient, the report said. In South Africa, “the required current account adjustment is to a large extent generated by the existing moderate current account deficit,” Goldman said. “In addition, we would expect to see a relative outperformance of gold under a ‘back to 2008’ scenario.”
The majority of countries are in a stronger starting position when compared with mid-2008, with the excesses of a pre-2008 credit boom now tempered, the report said.
“Most of the countries are running either a current account surplus or a moderate deficit,” Goldman said. “The exceptions are Turkey and Poland, a by-product of the strong domestic demand-led recoveries of the past two years.”
Source: http://www.bloomberg.com
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