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UniCRedit: Romania and Bulgaria are the most vulnerable to crisis in Euro zone

Romania and Bulgaria are the most vulnerable in the area to the crisis of debts on the outskirts of the euro zone, but the economic recovery of Central and Eastern Europe (CEE) on the overall is not endangered by the evolution of monetary union, a report of the Italian group UniCredit shows.

Bulgaria is facing the highest risks, followed at some distance by Romania, UniCredit analysts consider, while most CEE countries are protected by that evolution, Mediafax shows.

Problems in the euro zone may affect states in the CEE area through three channels – foreign demand, financial flows and admission to the euro zone.Since only a small part of exports from countries in the CEE area go to states on the outskirts of the euro zone, their crisis could hardly affect the recovery of industry and exports in the area. Bulgaria is the only CEE country where exports to the outskirts of euro zone exceed those to Germany, reflecting close ties with Greece. Romania follows Bulgaria, the report shows.

As for financial flows and the risk of their withdrawal by credit institutions from countries at the outskirts of the euro zone, there are certain risk areas, concentrated mainly around Greece. Romania has the second largest exposal toward Greek banks – 13.7%, after Turkey (17.6%). All CEE states except for Turkey have registered fund increases. Risks generated by Spain and Portugal are lower, the report shows.

The last crisis contagion channel in the euro zone is represent by the possibility of a delayed enlargement of the monetary union and the accession of states to the exchange rate mechanism (ERM II). EU will be more strict with the new candidates, UniCredit analysts note.

Budge deficits in the area continue to be consolidated but, on the overall, hey remain above the level of other emerging areas. Thus the average budget deficit in CEE dropped from 7% last year to 5.4% in 2010 and 4.7% n 2011. The public debt will continue to grow but will be less than 40% of GDP.

Turkey had the best performances as concerns budget deficit in the area. Analysts of the Italian group expect Romania and Ukraine to go to he right direction as concerns the deficit as long as they maintain IMF accords.

UniCredit recommends the transfer of investments from bonds in lei to Romanian Eurobonds, which are cheaper than bonds in the local currency. The situation is valid at the level of the whole country, Eurobonds being more attractive in terms of value than financial instruments in the local currency.

At the same time, because of uncertainties concerning foreign financing and risks of the fiscal situation the leu is not ready for a sustainable appreciation, bank specialists consider , and will be around 4.3 lei/euro. A slight appreciation to 4.2 lei may appear by the end of 2011.UniCredit maintained the prognosis on economic contraction by 2.5% for this year followed by a 1.7% advance next year and 3.4% for 2012.

Sursa: http://www.actmedia.eu

Tags: euro crisis bulgaria romania unicredit

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