Slide 1 / 21.04.23

“Efectele crizei economice in Europa Centrala si de Est - ce diferentiaza

România?”

Ionut DUMITRU, Economist-sef Raiffeisen Bank

Slide 2 / 21.04.23

Contraction size factors

Degree of dependence on external financing;

Degree of trade openness;

Export structure;

Exchange rate regime;

Size of macroeconomic imbalances;

Reliance of growth on cycle-sensitive and volatile sectors (construction,

cars);

Countries with the largest macroeconomic imbalances (especially current

account deficits and inflation) and high dependence of commercial banks

on external liabilities have seen the largest economic adjustments in

2009.

Slide 3 / 21.04.23

The regional context:Economic activity decelerated rapidly in all CEE countries

Source: Eurostat, IMF, Raiffeisen RESEARCH

High external funding needs

and

Low inflows of foreign capitals

Depreciation pressures for local currencies

Sharp fall in domestic demand (consumption and investments)

Increase in unemployment rate Freeze of lending activities

Overheated economies which relied in a large extent on external financing suffered the most !

GDP, consumption and investments: H1 09 vs. H1 08 (% yoy)

-40

-30

-20

-10

0

10

PL BG CZ EA SK HU RO EE LT LV

GDP (% yoy) Consumption (% yoy) Investments (% yoy)

-30

-25

-20

-15

-10

-5

0

5

PL CZ SK HU BG RO LT EE LV

Domestic private demand (% yoy in H1 2009)

Current account balance in 2007 (% of GDP)

C/A deficit in 2007 and change in domestic private demand (H1 09 vs. H1 08 in %)

Slide 4 / 21.04.23

Dependence on external funding – the main vulnerability The high current account deficit was the main macroeconomic

disequilibrium; The CA deficit fuelled the dependence on external funding;

But Romania was better positioned than other new EU member countries in terms of external funding dependence.

Current account deficit (% of GDP, 2008 Q4)

External funding dependence (% of GDP, 2008 Q4)

Note: Positive values denotes expected external outflows in the next year which requires funding

Source: EUROSTAT, JEDH, Raiffeisen RESEARCH

-5.6

-12.3

-25

-20

-15

-10

-5

0

5

LV BG LT HU RO EE SK PL CZ

Current account + Net FDIs (% of GDP)

Current account deficit (% of GDP)

0

10

20

30

40

50

60

70

80

BG LV EE HU LT SK RO PL CZ

Curent account balance + Short term external debt (% of GDP)

Curent account balance + FDIs + Short term external debt (% of GDP)

Slide 5 / 21.04.23

The regional context:Foreign capital inflows in CEE countries slowed down

External debt of private sector increased rapidly in last years

However, credit inflows slowed down substantially in last three quarters (stock of debt decreased in most of the countries)

Romania was not the most affected: stock of the private external debt has decreased, but in a less extent that in other countries

Dynamics of private external debt (% of GDP)

Source: World Bank, websites of central banks, Raiffeisen RESEARCH

Net inward FDIs in H1 09 vs H1 08 (EUR mn)

Change in stock of private external debt (Q2 09 vs Q4 08, %)

FDI inflows decreased also substantially in the first half of 2009

Romania was not the most affected:

Romania still recorded positive net FDI’s in 2009 (EUR 3.1 bn in Jan-July )

Contraction rate (-48% yoy in Jan-Jul) was the lowest as compared with other CEE countries

LV EE LT CZ RO HU BG PL-9.2 -6.9 -5.0 -4.1 -1.9 -0.2 0.7 10.7

0

20

40

60

80

100

120

140

Q2 07 Q4 07 Q2 08 Q4 08 Q2 09

RO CZ LT LV EE HU PL BG

-1000

0

1000

2000

3000

4000

5000

6000

7000

LV HU EE BG CZ PL RO LT SK

FDI inflows in H1 2008 (EUR mn) FDI inflows in H1 2009 (EUR mn)

10500

-76% -52% -52% -44% -41% -13%

Slide 6 / 21.04.23

Fast increase in external debt in last years, but good coverage with international reserves In spite of rapid increase from last years, external debt is still at a low level;

Large and very comfortable FX official reserves.

External debt, public and private sector (% of GDP, 2008)

FX reserves (% of country’s expected outflows, 2008)

Source: EUROSTAT, JEDH, Raiffeisen RESEARCH Note: External debt service = Short-term external debt (initial maturity) + +15% of long-term external debt (initial maturity)

0

20

40

60

80

100

120

140

160

HU LV EE BG LT SK RO PL CZ

Total external debt (% of GDP)

Short-term external debt (% of GDP)

-10

10

30

50

70

90

110

LV EE LT BG HU PL RO CZ

FX reserves (% of external debt service + C/ A deficit)

FX reserves (% of external debt service)

Slide 7 / 21.04.23

Most of CEE economies have a high degree of economic openness

Total exports (% of GDP) Total exports (% of GDP, 2008)

Note: CEE countries inludes Czeck Republic, Slovakia, Poland, Hungary, Romania, Bulgaria

Source: IMF, Eurostat, Raiffeisen RESEARCH

20

25

30

35

40

45

50

55

60

1994 1996 1998 2000 2002 2004 2006 2008

CEE countries Euro area Romania

2008

Romania 30.9

Poland 39.8

Bulgaria 60.5

Czech Republic 76.8

Hungary 81.4

Slovak Republic 82.6

CEE 53.8

Euro area 41.3

Exports account for a large share of GDP in case of most CEE countries– Large dependence on the external markets (especially Euro zone)

Romania and Poland, the largest CEE countries, depend in a less extent on the exports

Slide 8 / 21.04.23

High external debt of the banking sector, but better positioned than other NMS countries External debt of the banking sector is important, as banks had to take funds

from abroad in order to extend loans in FCY (more attractive for households and companies);

Romania is better positioned that other new EU member countries.

External debt of banking system (% of GDP, 2008 Q3)

External liabilities of banking sector (2008 Q3)

0

15

30

45

60

75

90

LV EE HU LT BG SK RO CZ PL UA RU

External debt of banking system (% of GDP)

Short-term external debt of banking system (% of GDP)

0

10

20

30

40

50

60

70

80

90

LV EE LT HU BG RO SK CZ PL

External liabilities of baking sector (% of GDP)

External liabilities of baking sector (% of total banking assets)

Source: EUROSTAT, JEDH, ECB, Raiffeisen RESEARCH

Slide 9 / 21.04.23

The regional context:Exports and imports slumped

Imports and domestic private demand

Source: Eurostat , Raiffeisen RESEARCH

Value of exports in Jan-Sep 2009 (% yoy)

Sharp contraction in domestic activity triggered a plunge in imports

Imports fell the most in overheated economies

Romania recorded the fourth highest contraction rate among the new EU member countries in Jan-Sep 2009

Fall in external demand triggered a sharp decrease in exports also

Romania recorded the lowest contraction rate among the new EU member countries in Jan-Sep 2009

-18.2

-35

-30

-25

-20

-15

-10

-5

0

LT LV EE BG HU CZ PL SK RO

-35.0

-45

-40

-35

-30

-25

-20

-15

-10

-5

0

5

LT LV EE RO BG PL HU SK CZ

Imports (Jan-Sep, % yoy) Private demand in H1 2009 (% yoy)

Slide 10 / 21.04.23

The regional context:Economic activity moved close to the bottom

Source: Eurostat , Raiffeisen RESEARCH

Economic Sentiment Index (ESI)

(3 months moving average)

Level of industrial output

(2008 H1 =100, 3 months average)

Industrial output in Jan-Sep (% yoy)

It seems that economic activity is close to the bottom:

After sharp falls at the end of 2008 – beginning of 2009, the industrial output started to recover in most of the countries

Economic sentiment indexes improved over the last months

Performance of Romanian industrial sector was much better than all other CEE countries except Poland

-8.5

-30

-25

-20

-15

-10

-5

0

EE HU LV SK BG LT CZ RO PL

65

75

85

95

105

Sep-07 Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09

BG CZ EE HU LT

LV PL RO SK

20

40

60

80

100

120

May-08 Nov-08 May-09 Nov-09

BG CZ HU EE LV

LT PL SK RO

Slide 11 / 21.04.23

The regional context:Unemployment rates have increased

Source: Eurostat, ANOFM, Raiffeisen RESEARCH

Unemployment rates have increased rapidly in last year, especially in Baltic countries

In case of Romania, increase in harmonized unemployment rate was low. However, the recorded unemployment rate (based on officially recorded unemployment) increased faster.

Latest unemployment rates (Eurostat harmonized methodology, ILO)

Change in unemployment rate from June 2008

For Romania, both ILO rate and recorded unemployment rate:

- ILO rate at 6.4% in Q2 2009

- Recorded unemployment rate at 7.2% in Oct 2009

6.47.2

0

4

8

12

16

20

RO CZ

(Sep)

BG

(Sep)

PL

(Sep)

HU

(Sep)

EA

(Sep)

SK

(Sep)

EE

(Jun)

LT

(Jun)

LV

(Sep)

Harmonized unemployment rate (ILO, %)

Romania: recorded unemployment rate (%)

0.7

3.2

0

2

4

6

8

10

12

14

RO CZ

(Sep)

BG

(Sep)

PL

(Sep)

HU

(Sep)

EA

(Sep)

SK

(Sep)

EE

(Jun)

LT

(Jun)

LV

(Sep)

Slide 12 / 21.04.23

The regional context:Some of the countries asked for external financing packages

External financing packages agreed with the IMF

In March, Romania secured a 2-year external financing package amounting to EUR 20 bn

The package covers external financing gap for 2009 and 2010

Source: World Bank, IMF , Raiffeisen RESEARCH

External financing package for Romania

Facing with high external debt service and expected lower inflows of foreign capitals, some of the new EU member countries (Latvia, Hungary, and Romania) asked and received financial assistance form the European Commission and the International Monetary Fund

to limit the pressures for currency depreciation (Hungary, Romania)

to smooth the economic adjustment

External debt of public sector replaced external debt of private sector

Hungary, Latvia and Romania received also financial assistancefrom the European Commission and World Bank

Slide 13 / 21.04.23

The regional context:Sentiment of investors improved in last months

Source: Bloomberg , NBR, Raiffeisen RESEARCH

Regional exchange rates

All regional currencies depreciated at the end of 2008 – beginning of 2009, while CDS quotations increased also.

However, starting February the investors’ sentiment improved and part of the losses were recovered

In 2009, the leu was much stable than the other floating regional currencies:

Interventions of central bank in the FX market

Tight control of central bank over the liquidity in the money market

Lower trading volumes in the FX market

CDS quotations, 5 years, USD segment

85

90

95

100

105

110

115

120

125

130

135

Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09

EUR/ HUF EUR/ PLN

EUR/ CZK EUR/ RON

0

200

400

600

800

1000

1200

Sep-

08

Oct

-08

Nov

-08

Dec

-08

Jan-

09

Feb-

09

Mar

-09

Apr

-09

May

-09

Jun-

09

Jul-09

Aug

-09

Sep-

09

Oct

-09

Nov

-09

Hungary Poland Czech Republic Bulgaria

Latvia Lithuania Estonia Romania

Slide 14 / 21.04.23

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-6.5

-5.0

-3.5

-2.0

-0.5

1.0

2.5

4.0

5.5Fi

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Swee

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Luxe

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rgBu

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sN

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Aus

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Belg

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Slov

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Euro

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Cze

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Port

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Esto

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Lith

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Hun

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Pola

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Latv

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Rom

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Irel

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-5-4-3-2-101234567

Budget deficit (% of GDP) Economic growth (%, rhs)

Budget deficit vs economic growth in 2008

Slide 15 / 21.04.23

Main macroeconomic indicators, 2008

TotalShort term

%%, annual average

% of GDP % of GDP% of GDP

% of GDP % of GDPmonths of imports

Bulgaria 6.0 12.0 -25.3 115.2 107.7 38.9 14.1 5.0Czech Republic 2.5 6.3 -3.1 130.3 38.9 12.5 29.8 3.0Estonia -3.6 10.6 -9.2 119.3 120.2 46.6 4.8 2.7Hungary 0.6 6.0 -8.4 137.2 113.3 17.5 73.0 3.4Latvia -4.6 15.3 -12.7 73.0 128.5 43.0 19.5 3.4Lithuania 2.8 11.1 -1.6 111.1 71.4 24.1 15.6 2.3Poland 5.0 4.2 -5.5 71.0 47.5 12.7 47.1 3.2Romania 6.2 7.9 -12.3 62.6 53.4 15.9 13.6 5.3Slovakia 6.2 4.6 -6.3 152.8 55.1 na 29.2 naSlovenia 3.5 5.7 -6.2 130.3 105.3 na 22.8 na

Public debt

Foreign international

reserves

External debtReal GDP

Inflation rateCurrent account deficit

Openness of the economy