Analysts expect renewed growth

RIGA - A rebound in prices for East European assets is expected as investors return to emerging markets and “neighborhood risk” diminishes, says a study by Citigroup, reports LETA-Bloomberg. The region, the worst hit by the euro zone debt crisis, is bound to outperform as “Central and Eastern Europe was home to the world’s worst-performing currencies in the second-quarter sell-off, so the recent return of risk appetite in global markets could see” the region’s “asset prices do particularly well,” David Lubin, Citi’s London-based head of emerging markets, wrote in an e- mail on July 30.

The growth outlook in the euro zone, the largest export market for most of Eastern Europe, has damped recovery prospects as the 16 countries sharing the common currency have been grappling with a sovereign-debt crisis.
Demand at recent auctions of Greek, Spanish and Portuguese debt and a report that showed European economic confidence rose to the highest in more than two years has, nonetheless, eased concern that Europe’s debt crisis may derail the recovery. That helped European stocks rally this week and pushed German ten-year government bond yields to near their highest in more than two months, signaling increased willingness to buy risky assets.
There are still threats to emerging Europe’s financial stability, Lubin said. The region’s vulnerability stems from possible financial contagion that stressed western European banks might be reluctant to roll over debt on the balance sheets of their East European subsidiaries, he said.

The European Bank for Reconstruction and Development, which helped limit the impact of the financial crisis in eastern Europe by persuading banks such as Italy’s UniCredit, France’s Societe Generale and Austria’s Erste Bank to remain in the region, warned last week that the worst isn’t over for the banking industry, which will slow credit expansion.
Chief Baltic analyst at Danske, Violeta Klyviene, says that the Latvian and Estonian economies are already rebounding, and Lithuania is likely to return to growth. Speaking at a press conference in Vilnius on July 29, Klyviene added that Estonia probably returned to annual growth in the second quarter.

Lithuanian GDP will grow 1.2 percent this year despite a May forecast for a 2.2 percent contraction. The Lithuanian economy may grow 3.6 percent next year, Danske Markets said. “The recovery in the eurozone and Russia will have a positive impact on the exports outlook,” the report said. “Exports have already begun moving up strongly and industrial production should improve further as well.”