Eastern European Currency Devaluations Certainly Not Helping Export Business

This very short piece of news in Bloomberg Wednesday morning is straight to the point, how the hell are you going to export to countries (when you now need to live from exports) if those countries are having massive devaluations while you mark time. Oh, I know that Ukraine and Russia represent only a small fraction of Baltica exports, but they aren't the only ones falling, the Romanian Leu, the Polish Zloty, the Hungarian Forint, the Czech Koruna are all falling, and all these countries are direct rivals for market share in the rest of the EU.

AB Snaige, the only refrigerator maker in the Baltic states, will cut about 300 jobs in its Lithuanian factory, citing lower demand in Russia and Ukraine as both the ruble and hryvnia lose value against Lithuanian litas. Sales in Russia and Ukraine have “stopped” and “there is no evidence these markets will revive” during the first quarter, the Alytus, Lithuania-based company said in a statement to the Vilnius Stock Exchange today. The company employs “more than” 2,300 workers in its two factories in Lithuania and Kaliningrad, Russia, according to its Web page.

Basically as I say, it also matters which currency you are pegged to. One commenter has made this point.

Regarding Latvia, I'm working for [an] industrial company in Latvia, with most customers from Sweden or Russia and [the] latest SEK and ruble rate changes have really eaten up business both for export and import. From SEK/LVL we lose in [a] funny sequence, [the] more you sell - [the] more you lose. Today, there are a lot and a lot of industries closed, closing or planning to close.

Evidently there is a lot of "restructuring" going on, but is it the kind of restructuring Latvia and Lithuania need, I ask you?

Euro To Swedish Krona

Here's the chart of the Euro with the Swedish Krona.

click to enlarge

Euro To Russian Ruble

Here's the Euro/Ruble chart:

Euro To Polish Zloty

Finally, here's Latvian industrial output for November, anyone spot the trend?

And incidentally, Latvian exports were down 19.7% between October and November 2008. And incidentally, Latvian exports were down 19.7% between October and November 2008. Oh, I know, I know, not only doesn't Latvia need exports, it doesn't need industry either. Meanwhile, onwards and downwards we go.

Comments

[ur:]

On the background of your analysis, would you please explain these developments (data accordinng to EUROSTAT):

Export growth in November 2008, yoy

Czech Rep.: -12.5%
Hungary: -10.8%
Poland: -16.0%
Sweden: -21.0%
UK: -21.5%
----------------------...
Denmark: -13.9%
Estonia: -18.9%
Latvia: -13.3%
Litduania: +17.1%
Slovakia: -7.7%

Jan 23 03:06 AM

[Mad Hedge F...:]

VVB df While American banks have their subprime crisis, European banks are being dragged under by their lending to emerging economies in Eastern Europe. Ledd by UniCredit in Italy, Austria’s Erste Group Bank and Raiffeisen International, France’s Societe Generale, Belgium’s KBC, and Hungary’s OTP, banks have lent $1.6 trillion to companies in these formerly communist countries at cheap rates, with minimal documentation, and few questions asked. The easily available credit caused local money supplies to explode, and sparked bull markets in both stocks and currencies. Emerging Europe grew at rates double and triple rates in the West, as local companies pumped up on steroids became the master of leverage. Now $400-$600 billion is due for rollovers this year from nonexistent credit markets, and the chickens….make that vultures have come home to roost. Economic growth has fallen off a cliff, with Poland’s seasonally adjusted industrial output down in December a precipitous 7.4% YOY. The Polish stock market fell 48% last year, and the zloty of off 40% again the dollar from its June peak. The Central European Equity Fund (CEE) has crashed 80% in eight months. The crisis is so severe, it may postpone Poland’s entry into the Euro block, which had been scheduled for 2011. Home mortgage borrowers are in especially bad shape. Up to 50% of their loans were denominated in Swiss francs, so the collapsing Polish currency has caused a near doubling of borrowers’ monthly payments and principals since last year. Austria really has its knickers in a twist, as these heavily syndicated loans account for 80% of GDP. A 10% default rate could wipe out the entire banking system there. Germany has the smallest loan exposure, but has the most to lose, with 25% of its exports headed east. It is now in negotiation with its partners in the EC to cobble together a bailout with the help of the IMF to provide bridge financing for these loans, and hopefully ward off a further economic collapse. It looks like the headlines in Europe are about to get uncharacteristically sensational.

Mar 01 11:12 PM