Baltics immune to rising risk trend across CEE – ECR Q2 2013 results
Jeremy Weltman
Two-thirds of the region’s 18 countries have seen increased risk since December, not least because of the failure of Cyprus to recover its score decline following the banking crisis.
The CEE region has seen the largest increase in risk of any world region during H1 2013, further narrowing the score differential with the Middle East to just 0.6 of a point. The average score has been affected enormously by events in Cyprus, which caused a 5.8 point score loss and a fall to 60th in the rankings, but not all countries have followed the trend.
The Baltic states, where political stability and fiscal balances are stronger, seem impervious to the risks. Pepping up the region (and the eurozone), Estonia continues to find favour among country-risk experts. With its strong growth – 3% this year, 4% next, according to the European Commission – falling unemployment, virtual fiscal balance and low gross debt burden – at little more than 10% of GDP – it is no surprise that less than a point now separates this mid-placed tier-two Baltic state from 22nd-placed Belgium in the rankings.
The neighbourhood triangulation of the Czech Republic, Slovakia and Poland, with their own strong trade links, have also resisted falls on account of better capital access – though the latter two have seen some deterioration since March.
Other countries, including Hungary (a fall of 2.2 points), Montenegro (down by 1.5), FYR Macedonia (1.4), Bulgaria and Romania (both 1.1), Turkey (0.7) and Slovenia (0.6) have all contributed to the average score decline, even if some countries – with the notable exception of the latter two – have steadied since March (see Core CEE economies become riskier in June).
The unrest in Turkey is a contributory factor, along with the political problems – in Hungary, for instance – though generally speaking risk perceptions are linked to eurozone contagion affecting the banking systems, low growth prospects and capital flow problems, with its implications for fiscal stability.
Stronger growth and a reduction in public debt have stabilized opinions toward Hungary but its score is still lower than in December, notably because of concerns surrounding currency stability and five of the six political factors, highlighting the government’s unorthodox approach to economic policymaking and its weakening of the country’s democracy and institutional independence.
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