REUTERS SUMMIT-Emerging Europe poised for modest economic upturn
PRAGUE/SOFIA, Sept 27
PRAGUE/SOFIA, Sept 27 (Reuters) - Emerging European economies are set for a tepid recovery that won't restore them to the pre-financial crisis boom years but should let them weather the withdrawal of cheap money from the Federal Reserve.
That is the message from corporate executives and policymakers who spoke at a Reuters Eastern Europe Investment Summit this week and painted a picture of tentative business investment starting to take up the slack from still-weak consumer demand.
"When (looking) at the economies of central Europe, and not just the energy sector, we do see a recovery that is slowly coming," said Pavel Cyrani, board member at Czech group CEZ , the biggest utility in eastern Europe.
Still, few business leaders expect a return to the heady growth fuelled by abundant credit that formerly Communist countries in the region enjoyed after the Iron Curtain fell.
"This good time is over," said Zbigniew Jagiello, chief executive of PKO BP, Poland's biggest bank. "Now Poland is faced with a new reality."
Poland has been a rare bright spot in an otherwise bleak European economic landscape, sustaining growth of around 2 percent last year in contrast to recession elsewhere. But such run-of-the-mill growth rates now expose the country to budget deficit and debt woes, Jagiello said.
Mateusz Morawiecki, head of Polish bank BZ WBK, took a more upbeat line for the region's top economy.
"We noticed a breakthrough in the economy over the summer months," when credit demand suddenly emerged, he said. "Maybe it will not be a V-shaped recovery but we are seeing a turn towards investments."
With signs that the worst may be over in the euro zone that absorbs a lot of emerging Europe's exports, much hinges on whether sentiment in the region picks up again, officials said.
"Consumption is still at a very low level because people do not have confidence in the recovery," said Levon Hampartzoumian, head of UniCredit's Bulgarian unit Bulbank.
EYES ON THE FED
That can also be seen in the shopping habits of Czechs, said
Marek Switajewski, chief executive at Unipetrol , the country's biggest petrol station operator.
"Czech people in the past were stopping at (pricey) petrol stations buying food, drinks, ... now people are very careful where they buy, they are much more focused on discounts," he said. "We are still in recession and the recovery will be long and painful."
A big hurdle for the region is how investors react when the U.S. central bank finally starts scaling back its $85 billion in monthly bond purchases. This has been a flood of liquidity that had helped fuel market rallies in higher-risk markets.
Even though the Fed surprised markets this month by keeping the stimulus in place for now, concerns that the monetary fire hose may soon start losing its power have triggered an exodus of short-term investments from many emerging markets.
Central and eastern Europe is especially vulnerable to this given the region's relatively high levels of short-term debt compared with foreign currency reserves.
But officials at the Summit put the best face on affairs, even in Hungary, some of whose fiscal policies have drawn the ire of banks and multinationals operating there.
"Given the improvement in Hungary's fundamentals...I am worried - I am paid to be worried - but I see the risk as much less significant than it was in the past or is in the case of certain other countries where those inflows have been more substantial," said Gabor Orban, a top economy ministry official.
The deputy head of the country's debt management agency, Laszlo Borbely, pointed out that Hungary and Poland were the only two countries in the region with significant government debt markets and had managed to escape much fallout so far.
"The fact that the shock experienced in several other countries has not happened in Hungary - a country that has a much weaker credit rating - makes it likely to me that it will not happen in Poland either, which has a better assessment and situation then us," he said.
"It is very important that Hungary's situation is very different from those who suffered from the capital withdrawal wave. That is because Hungary has a current account surplus."
(For other news from Reuters Russian and Eastern Europe Investment Summit, click here) (Follow Reuters Summits on Twitter @Reuters_Summits) (Additional reporting by Sandor Peto and Krisztina Than in BUDAPEST, Jason Hovet in PRAGUE, and Marcin Goclowski in WARSAW; Writing by Michael Shields in Vienna)