Continuing my amateur dramatics (economic variety) from a string of rants on 20 east (below the fox), I thought I’d pop over here and carry on waffling. Carry On films used to be all the rage back in the UK, you know. When I was a lad at any rate.
The Big Picture
I very rarely read The Economist but I had an hour to kill while Zosia trained to be the next Margot Fonteyn and so I bought a copy, tempted by the front page headline – “What will happen to the emerging economies?”. According to them, there are a few countries around us who are probably heading for serious trouble but the good news is that in Poland
“….life should be at worst a bit tougher, rather than downright nasty.”.
Russia needs to work on a few things but is sitting on so much cash that it’s unlikely to be in big trouble or need outside help. Ukraine doesn’t look good at all. Stock market down 80%, currency at 7yr low, economic growth plunging (variation on plummeting!), inflation at 25% and the icing on the cake is political unrest.
Hungary is potentially even worse with public debt at 60% of GDP and a huge amount of debt in foreign currencies gambling on convergence with the Euro. Many Hungarians risk bankruptcy if the forint keeps going south. The IMF and ECB are apparently keen to help though as they consider the Hungarian central bank to be very well run and the authorities have done well in reducing the budget deficit.
Possibly the riskiest positions are held by the Baltic states who have massive current-account deficits. They reckon that the money needed for foreign debt repayments and current-account deficits is 400% of likely year end foreign exchange reserves in Latvia, 350% in Estonia and 250% in Lithuania. The highest such ratios in this region.
For Bulgaria and Romania the question might be of how much support they will get from outside, should they need it. They are, it seems, the ugly sisters of the central/eastern beauty parade and it could be that whatever money is available will go elsewhere. They are also the worst countries in dealing with corruption and organised crime, which doesn’t help.
Poland only gets a small mention in the article and one that suggests it is better than most but not without potential issues. Czech gets no mention at all. “Bursting property bubbles” is a phrase applied to every country.
The Medium Picture
I have a standard line for all the people I know who tell me they have found a job with a developer. It goes something like this – “If you like the smell of better but short term money then be my guest but don’t come back to me when it’s all gone tits up!”. One such recipient of this advice ignored my words and asked if he could meet me for a coffee last week. Of course, he’s looking for a job after the Spanish residential developer he sold out to a couple of years back has closed shop and gone back to the land of tapas and all-day sleeping. I don’t have any jobs, so it was a shortish chat but I noted some interesting figures. They have developments in various places but lets just look at Poznan and Warsaw. Apartments in both developments went up for sale about six months ago. Since then, they have sold roughly six from 380 in Poznan and one from 120 in Warsaw. Has to be said that they are selling slightly ‘upmarket’ apartments for higher than average prices but nevertheless, it’s not an encouraging sign.
The Small Picture
I hate being proved right when it comes to nasty predictions but when I questioned the wisdom of Swiss franc mortgages a few months ago, I didn’t realise how quickly I was going to achieve sagedom! It is now a common occurrence in our office to hear screams of “Oh bugger!” as those mails arrive from the bank telling our staff how much their mortgage payment will be this month. I don’t know the actual figures, but one chap is now having to find an extra 500 PLN a month to pay his mortgage that started out at less than 3,000/month. The more you borrowed, the worse it is and I don’t think it is going to get better in a hurry.
How deep does this go? Well, as every single one of my employees has a Swiss franc mortgage I expect this is quite a widespread problem, certainly amongst those who are paid well above the national average. I asked how many of them had heard from the banker issuing the mortgage something like “Of course, things can change so let’s take a look at what happens if your payments go up by say 30% shall we?”. The answer should be no surprise to anyone. Conversely, they had all been shown the chart that explains how the zloty/franc have enjoyed a special flat-line exchange rate relationship since neolithic times. That’s good then, we have a chart telling us how safe this is going to be but no chart that explores the possible downsides. I’ve told them all to go back to the bank, find the banker who sold the mortgage and ask them what they are supposed to do now!
Still cheaper than a mortgage in PLN – I hear the banks shout. Very possibly, but that’s not the point, is it.
These foreign currency mortgages are a ticking parcel of nastiness.
The Bottom Line
Going to be a tough Christmas season for retailers. Don’t expect any big presents from friends and family, but enjoy it anyway!! Oh, and if what I’m saying above does not apply to you then I have good news. Valentino is opening soon!