Hungary most vulnerable to eurozone crisis - Citigroup
Citigroup Global Markets predicts a possibility of a spill-over of the eurozone crisis to emerging Europe through trade channels and banking sectors.
Citigroup Global Markets developed a way of measuring the impact of the eurozone crisis on emerging Europe with its "Contagion Index," reports The Financial Times.Â
Investors identify three main channels through which the crisis could spread to on emerging Europe: public sector debt/financing, the banking sector and the real economy/trade. In addition to these three factors, Citigroup adds two further indicators that would become relevant during a more general fall in risk appetite: 1) the size of each country’s external financing requirement and 2) the share of non-FDI capital flows as a percentage of GDP.
Putting these variables together into a “Contagion Index,” Hungary, along with the Czech Republic, Poland and Turkey, is most at risk if the eurozone crisis spreads beyond the periphery. On a scale of 0 to 1, with 1 being the highest degree of vulnerability, Hungary received 0.65 - the highest in the region.
Looking at the debt/financing angle, emerging Europe is not facing a solvency crisis like many countries in the eurozone. For Hungary, debt is at around 40% of GDP at present – half the average for the EU as a whole and significantly below the likes of Greece at 145%. However, while the solvency of the government is not in doubt, high external financing requirements mean Hungary is vulnerable to a fresh liquidity squeeze.
Hungary as well as the rest of the region is probably most vulnerable through the real economy/trade channel, says Financial Times. The recovery of the economies of emerging Europe has been almost entirely driven by the resurgence in exports to western Europe, particularly Germany, rather than from any improvements in domestic demand.
However, the potential for the euro crisis to spread to the region’s banking sectors poses a far more dangerous channel of contagion, which could ultimately tip Hungary's economy back into recession and – in the extreme – require fresh bailouts from the International Monetary Fund (IMF), analysts warn.
Â
ADVERTISEMENT
KSH Dismisses Reports of Eurostat 'Investigation'
Hungarian-American Business Chamber Established in Chicago
SUPPORT THE BUDAPEST BUSINESS JOURNAL
Producing journalism that is worthy of the name is a costly business. For 27 years, the publishers, editors and reporters of the Budapest Business Journal have striven to bring you business news that works, information that you can trust, that is factual, accurate and presented without fear or favor.
Newspaper organizations across the globe have struggled to find a business model that allows them to continue to excel, without compromising their ability to perform. Most recently, some have experimented with the idea of involving their most important stakeholders, their readers.
We would like to offer that same opportunity to our readers. We would like to invite you to help us deliver the quality business journalism you require. Hit our Support the BBJ button and you can choose the how much and how often you send us your contributions.
