CURRENT FINANCIAL CRISIS AND POSSIBLE FUTURE DEVELOPMENT IN

CURRENT FINANCIAL CRISIS AND POSSIBLE FUTURE DEVELOPMENT IN CENTRAL AND EASTERN EUROPE VIKTOR ŠOLTÉS University of Economics in Prague Faculty of finance and accounting 31 August 2009 Abstract Paper is about current financial crisis started year ago. A paper is divided into a few parts. In the first part there is a description of causes of crisis - its roots in USA since bursting of dot.com bubble, monetary expansion which didn‘t translate into inflation due to imports of cheap goods from China. Expansionary monetary politics caused inflation of assets prices with creating bubbles of almost all assets classes in the world. The worst situation – the biggest price bubbles was seen at house prices, commodity prices and stocks’ prices. Cheap money were encouraging subjects in economy to increase their leverage and to invest money back mainly into housing sector. Debt of households in USA and even some other reached unprecedented levels. In the first part there is also description of downward spiral of decreasing houses’ prices, decreasing asset prices and development of crises hitting the whole globalize world. In details are described main drivers of the crisis – debt expansion in the USA, housing prices bubble in the USA and failure of Americans to repair their debts. In the second part there is description of historical parallels. Situation today, how it was developing a how would be developing. In this part, focus is mainly on development in the USA – what was the situation, what FED did, what the US Government did and how much it costs. Short summary of US Governments’ programs used is possible to read also in the 2nd part. Shortly there is also description of situation in Europe – mainly European monetary union. Steps did by European central bank and national governments. Situation in the biggest European economies are briefly summarized – mainly Germany, France and non-member of European monetary union Great Britain. All factors which could lead to severe recession are in place in USA. Development on credit and assets market is similar to recent financial crises. The risk seems to be a little bit lower in Europe, nevertheless, with great differences among countries (Baltic countries, Ireland, Spain and UK with greater risk). Financial shock is affecting real economy through financial intermediaries. Therefore it is essential to keep capital strength and stability of financial sector. Importance of financial sector is due to its cycle-strengthening behaviour. Lending rises in boom and decreases in times of rising risks and assets value decrease. In all likelihood, we cannot avoid the recession; the question is in how many quarters GDP will pose negative growth. Number of developed countries are already in recession –USA, UK, Germany – from big states, but in Europe almost every country was in contraction in 1Q 2009. In the third part there is a summary of governments’ steps and possible future situation: Governments and central banks are employing dramatic measures to restore the functionality of banking system and thus preventing the crisis to flow from finance to real sector. Although the measures seems to be dramatic, more fiscal and monetary policy measures would be inevitable to kick-off real economy (support of housing sector in USA and most hit EU countries, further decrease of fund rates, fiscal stimulus etc). What would such huge money pumping do with inflation and yields? Short term yields pressures. Decelerating real economy will create disinflation pressures. Moreover, government interventions into banks don’t automatically transmits into increased willingness to credit the real sector. Other disinflation pressure will be falling commodities prices. Therefore there is still space to further decrease in central banks fund rates, especially in Western Europe. Long term yields will several pressures. Downwards pressures from decrease of inflation and GDP. Upwards pressures from loose fiscal policy and need of further emission of government bonds to fund “rescue packages”. So, yields decreased in months especially on short durations of yield curve causing “Bull Steepening” which will affect even CEE yields. The most important is the last, fourth part of the paper. Role of the Government and central banks in current crisis in the countries in central and eastern Europe. How crisis affect these small and opened economies. Focused mainly on Czech Republic, Slovakia, Poland and Hungary. A few notes also about Russia and Balkan states. What was the situation in these countries before the crisis and what is the situation now. What are governments doing to not deepen the crisis? Which part of the industry was hit the most and consequences for macroeconomic situation of the country. These countries are depended on their main trade partners – bad situation in trade partners – worse situation in these countries. Problems with cash flow of companies. There can be some interesting opportunities for strategic investors by actual low valuations of the companies – mainly in Balkan countries. Key words financial crisis, fiscal policy, monetary policy, central banks, international trade, central and eastern Europe Introduction Paper is focused on actual situation in CEE4 countries (Poland, Hungary, Slovakia and Czech Republic) in the times of financial crisis and its impression on small open economies (except Poland). Poland is not so dependable on external demand like three other countries form the same region. At the beginning there is described situation in USA and how the crisis began. US government and FED fighting with crisis with all the way they can use. Financial crisis originated in the USA thanks to globalisation influenced also region of Central and Eastern Europe. There are a lot of questions about situation in these small open economies, and, however, more questions about possible future development. Usually investors look on the region as a whole. But not all the countries are on the same level. Current situation is always different in another country. Purpose of this paper is to summarize situation in a region as a whole and also to point out differences in particular country. Origin of the Crisis Current financial crisis has its roots in USA since bursting of dot.com bubble. FED, afraid of recession and possible deflation pressures, cut funding rate to 1%. Holding rates such low for a long period led to huge monetary expansion which didn‘t translate into inflation due to imports of cheap goods from China and other emerging markets. The expansion caused inflation of assets prices with creating bubbles of almost all assets classes in the world (house prices, commodity prices, stock prices). Cheap money encouraged subjects in economy to increase their leverage and to invest these money back mainly into housing sector Debt of households in USA and even some other EU countries (housing debt on GDP -Denmark 100%, Netherlands , Spain ~ 60%, UK, Ireland) reached unprecedented levels Banks eager to do more new business and to increase their profitability increased their leverage through assets securitization, increased use of preferred and hybrid capital, SUV etc. The poorest capitalized banks are the biggest ones (perhaps moral hazard –too big to fail). The crisis started when FED increased its basis rate and mortgage instalments (based on floating rates) went up significantly. People stopped taking mortgages and subprime borrowers started failing to repay their debts. Lower demand and rising supply (from foreclosures) has been pressing inflated housing prices down. Downward spiral has started… Structured assets linked to American mortgages started to show first losses in 2007. As they are “Black box” for investors, they ran away from them and market with them practically collapsed. Holders of toxic assets have to charge-off hefty losses. Fear and suspicion ruled banking market, nobody trusted anybody –since 3Q07 interbank market faces liquidity squeeze. As the financial world is highly globalized, the crises hit the whole world and all segments of financial markets. 1 Main Drivers –Debt Expansion in USA US Debt reached levels unseen since The Great Depression; it reached $53 trillion (over 350% GDP). Household debt $13.8 trillion, incl. $10.5 trillion mortgage debt and $2.6 trillion credit cards debt. External debt soars by almost 100% from 2003 to 2007 to $12.5 trillion (24% of total debt). 1 Current Financial Crisis, PPF, 2008 Source: Morgan Stanley Housing bubble in USA US housing sector driven by cheap loans affordable literally to everyone shoot up. Sales of new homes reached all time highs. House prices had tend to rise with inflation, but they have soared since 1998. Decrease in new home sales well foresee recession coming. Fall from 1400 to 460 could signalize really deep one. 2 Source: Calculated Risk (http://www.calculatedriskblog.com/search/label/New%20Home%20Sales) Main Drivers –Failure of American sto Repair the in Debts Subprime borrowers are not able to repay their debts; default on ARM loans reached 33%, on FRM 12% (ARM –adjustable rate mortgage, FRM –fixed rate mortgage).Even prime lenders’ ability to repay is quickly diminishing. Partially, it could be due to negative equity value of their homes which lead them to transfer the loss on financing bank. Number of foreclosures jumped from average 660 thousands to 2 millions in 2008. 2 Current Financial Crisis, PPF, 2008 Government Measures to Stop Crisis Governments and central banks are employing dramatic measures to restore the functionality of banking system and thus preventing the crisis to flow from finance to real sector. Although the measures seems to be dramatic, more fiscal and monetary policy measures would be inevitable to kick-off real economy (support of housing sector in USA and most hit EU countries, further decrease of fund rates, fiscal stimulus etc).Various actions have been taken since the crisis became apparent in August 2007. In September 2008, major instability in world financial markets increased awareness and attention to the crisis. Various agencies and regulators, as well as political officials, began to take additional, more comprehensive steps to handle the crisis. To date, various government agencies have committed or spent trillions of dollars in loans, asset purchases, guarantees, and direct spending. Troubled ASSET RELIEF PROGRAM 3 Financial rescue plan aimed at restoring liquidity to the financial markets Program Committed Invested Description $40 billion in preferred shares were converted to so-called non-cumulative shares that more closely resemble common stock. Treasury later offered another $30 billion in preferred shares for up to 5 years, in return for a 10% dividend. Funds set aside to backstop potential losses to government from Citigroup and Bank of America loans. Program to help stabilize auto suppliers by guaranteeing debt owed to them for shipped products, and providing financing to continue operations. American International Group $70 billion $69.8 billion Asset Guarantee Program • Citigroup • Bank of America Auto Supplier Support Program • GM Supplier Receivables • Chrysler Receivables $12.5 billion • $5 billion • $7.5 billion $5 billion • $3.5 billion • $1.5 billion $80.1 billion • $49.9 billion • $15.2 billion • $13.5 billion • $1.5 billion $5 billion • $5 billion • $0 $3.5 billion • $2.5 billion • $1 billion $80 billion • $49.9 billion • $15.2 billion • $13.4 billion • $1.5 billion $204.4 billion Automotive Industry Financing Program • General Motors • Chrysler • GMAC • Chrysler Financial Program that provides capital on a case-bycase basis to systemically significant auto and auto-financing companies that are at substantial risk of failure. Capital Purchase Program $218 billion Preferred investments in banks to prop up capital reserves and encourage lending, in return for dividend payments and stricter executive compensation requirements. Programs to support private lending purchases of toxic assets and backing SBA loans. Also sets aside funds to backstop potential losses to government from purchases of mortgage-backed securities and other securities backed by consumer loans. Multipronged foreclosure prevention plan to help as many as 9 million borrowers by modifying or refinancing loans. Taxpayer funds used in partnership with private investment that will buy up at least $500 billion of toxic assets from financial institutions. Consumer and Business Lending $70 billion Initiative • $20 billion • TALF investment • $15 billion • Small business loan program • $35 billion • TALF loss provisions $20 billion • $20 billion • $0 • $0 Making Home Affordable $50 billion $21.5 billion Public-Private Investment Program $100 billion $0 3 CNN Bailout Scorecard (http://money.cnn.com/news/specials/storysupplement/bailout_scorecard/index.html) Program Committed Invested $40 billion • $20 billion • $20 billion Description Targeted Investment Program • Citigroup • Bank of America $40 billion • $20 billion • $20 billion Emergency funding, in addition to previous $25 billion capital investments, for Citigroup and Bank of America Funds paid back New initiatives TARP total ($72.3 billion) $126.7 billion $700 billion ($72.3 billion) n/a $371.9 billion Estimate of how much banks participating in Capital Purchase Program will return to Treasury. FEDERAL RESERVE RESCUE EFFORTS Financial rescue plan aimed at restoring liquidity to the financial markets. Program Committed Invested Asset-Backed Commercial Paper Money Unlimited Market Mutual Fund Liquidity Facility Bank of America loan-loss backstop $97 billion $60.2 billion Description Financing to banks for purchases of threemonth asset-backed commercial paper from money market mutual funds to promote money market liquidity. Funds set aside to insure against bank's potential losses from Merrill Lynch merger. Program to guarantee potential losses on Bear Stearns' portfolio; smoothed the way for JPMorgan Chase to buy the failed investment bank. Funds set aside to insure against bank's potential losses from mortgage-backed securities investments. Purchases of short-term corporate debt aimed at boosting the struggling market and providing critical three-month financing to businesses. Exchange of dollars to 13 foreign central banks for collateral. Aim is to provide liquidity to foreign financial institutions. Program to buy debt issued by Fannie Mae and Freddie Mac. Aim is to reduce rates on home loans. Program to buy mortgage-backed securities held by Fannie Mae and Freddie Mac. Aim is to reduce rates on home loans. Programs to help money market funds by lending to funds directly. $0 Bear Stearns bailout $29 billion $26 billion Citigroup loan-loss backstop $220.4 billion $0 Commercial Paper Funding Facility $1.8 trillion $53.7 billion Foreign exchange dollar swaps Unlimited $69.1 billion GSE debt purchases GSE mortgage-backed securities purchases Money Market Investor Funding Facility $200 billion $111.8 billion $1.25 trillion $600 billion $609.5 billion $0 Program Primary Dealer Credit Facility Committed n/a Invested $0 Description Long-time lending facility for commercial banks that was opened to investment banks for first time in March 2008. Program to buy consumer loan-backed securities. Aim is to revive the securitization market for consumer loans like credit cards and auto loans. Lending program that allows commercial banks to unload hard-to-sell assets, including mortgage-backed securities: Fed takes assets as collateral and banks get cash. Federal Reserve facility that loans Treasurys to banks against hard-to-sell collateral like mortgage-backed securities. Federal Reserve will buy up to $300 billion of U.S. debt to support Treasury market and help keep interest rates down for consumer loans. Term Asset-backed securities Loan Facility $1 trillion $36.3 billion Term Auction Facility $500 billion $221.1 billion Term Securities Lending Facility $250 billion $0 billion U.S. government bond purchases Fed total $300 billion $6.4 trillion $257.5 billion $1.3 trillion Federal stimulus programs Programs designed to save or create jobs and jumpstart the economy from recession. Program Committed Invested Description Economic Stimulus Act of 2008 • Rebates for individuals • Tax breaks for businesses $168 billion • $117 billion • $51 billion $8 billion $168 billion • $117 billion • $51 billion $8 billion Refundable tax rebates of up to $600 for individual filers and $1,200 for couples in effort to boost the economy. Businesses also received tax breaks. Federal funds to extend benefits for the unemployed. Program to purchase federal student loans from private lenders. Aim is to provide financing to companies that provide student loans. Infrastructure spending, funding for states, help for the needy and tax cuts for individuals and businesses to stimulate the economy. Energy Department loans to help auto manufacturers and parts suppliers create new fuel-efficient vehicles. The funds are awarded through a competitive process to companies that can increase fuel standards Unemployment benefit extension Student loan guarantees $195 billion $32.6 billion American Recovery and Reinvestment Act • Tax relief • Stimulus $787.2 billion $257.1 billion • $288 • $53 billion billion • $499.2 • $204.1 billion billion Advanced Technology Vehicles Manufacturing program $25 billion $8 billion Program Committed Invested Description at least 25% beyond 2005 levels. Rebate program that gives car buyers up to $4,500 for trading in qualifying gas-guzzling vehicles if they're buying more fuel efficient cars. Car Allowance Rebate System (“Cash for Clunkers”) Stimulus total $3 billion $3 billion $1.2 trillion $476.7 billion American International Group Multifaceted bailout to help insurer through restructuring, minimize the need to post collateral and get rid of toxic assets Program Committed Invested Description Asset purchases • Collateralized debt obligation purchases • Mortgage-backed securities purchases $52.5 billion • $30 billion • $22.5 billion $35.7 billion • $20.9 billion • $14.8 billion $30 billion from New York Fed for purchasing clients’ collateralized debt obligations and $22.5 billion for purchasing clients’ mortgage-backed securities. Loan to be reduced from $60 billion to $25 billion as government takes shares in AIG subsidiaries and receives cash flows from life insurance policies. AIG must pay 3% plus 3-month Libor rate to government in interest on the 5-year loan. Government to hold preferred interest in entities holding all the common stock of American Life Insurance Company and American International Assurance Company, two life insurance holding company subsidiaries of AIG. $40 billion in preferred shares were converted to so-called non-cumulative shares that more closely resemble common stock. Treasury later offered another $30 billion in preferred shares for up to 5 years, in return for a 10% dividend. Government giving AIG $8.5 billion and, in exchange, is receiving cash streams from the premiums of blocks of life insurance policies. Bridge loan $25 billion $39.2 billion Government stakes in subsidiaries $26 billion $0 TARP investment $70 billion $41.2 billion Other AIG total $8.5 billion $182 billion $0 $116.1 billion FDIC bank takeovers Cost to FDIC fund that insures losses depositors suffer when a bank fails. Program Cost to fund 2008 FDIC bank takeovers $17.6 billion Program 2009 FDIC bank takeovers FDIC total Cost to fund $17.9 billion $35.5 billion Other financial initiatives Other programs designed to rescue the financial sector Program Committed Credit union deposit insurance guarantees Money market guarantee program NCUA bailout of U.S. Central and WesCorp credit unions U.S. Central Federal Credit Union investment $80 billion $50 billion $57 billion Invested $0 $0 $57 billion Description Temporary guarantee of all corporate credit union deposits above former $250,000 limit. Treasury program to help money market funds by insuring against losses. Cost to NCUA credit unions, with backing of government, to place two troubled credit unions into conservatorship Cost to NCUA credit unions, with backing of government, to help troubled credit union cover anticipated losses on asset-backed securities. Guarantees on newly issued bank bonds backed with assets on company balance sheets with maturities of more up to ten years. Aim is to restore liquidity to the corporate bond market and provide longterm financing to banks. $1 billion $1 billion Temporary Liquidity Guarantee Program $1.5 trillion $330.5 billion Other financial total $1.7 trillion $388.5 billion Other housing initiatives Other programs designed to rescue the housing market and prevent foreclosures Program Committed Invested Fannie Mae and Freddie Mac bailout • Fannie Mae • Freddie Mac $400 billion • $200 billion • $200 billion $84.9 billion • $34.2 billion • $50.7 billion Description Cost to the government of taking the mortgage finance companies into conservatorship. Funding set aside for insurance of new 30year fixed-rate mortgages for at-risk borrowers, tax credits for first-time home buyers and assistance to states and municipalities. $20 billion from GSEs and $5 billion from HUD to help Treasury launch its $75 billion multipronged foreclosure prevention plan. FHA housing rescue $320 billion $20 billion Making Home Affordable investment Other housing total Total $25 billion $745 billion $11 trillion $0 $104.9 billion $2.8 trillion Economic and Financial Situation in the CEE-Countries 4 The CEE countries are faced with an economic slowdown, with growth prospects and with financial vulnerability that are by no means homogeneous. According to a special report by Moody’s in March 2009, the scale of the challenges faced by all CEE countries is limited, but liquidity risk could aggravate them. Some countries were more vulnerable than others to the abrupt global economic and financial changes that took place in the aftermath of Lehman Brothers‘demise. Countries such as Poland, the Czech Republic, Slovakia and Slovenia would be likely to escape the crisis with their economic models and sovereign ratings more or less intact because of their restrained pace of financial integration, characterized by a slower speed of financial deepening (lower credit growth rate, higher reliance on deposit funding) and less reliance on (unhedged) foreign currency financing intermediated by banks. But also countries like Romania, Bulgaria and Croatia have a resilient creditworthiness although their tight financing conditions or exchange rate risk makes them more dependent on external support. The main risks for the CEE countries are capital outflows and the lack of liquidity. However, the prevalent international concern that the CEE countries have USD 1.7 trillion in foreign loans, of which USD 400 billion already need to be repaid in 2009, must be put into the right context: According to the Bank for International Settlements (BIS), several Western European countries, such as Germany (USD 2.9 trillion), the Netherlands (USD 1.9 trillion) and Great Britain (USD 4.5 trillion) have even more outstanding loans than the entire CEE region together. All CEE countries will consistently have much lower short-term foreign financing requirements in 2009 than all other EU Member States. Currency depreciation in countries with a flexible exchange rate regime provides a significant improvement in price competitiveness, growth in exports and therefore a healthy improvement in the balance of trade. However a challenge for Eastern Europe is that the region cannot count on such strong capital inflows as in the past years, due to the squeeze from the global savings glut, which enabled some countries to run relatively large current account deficits in the past years. Given the slowdown of capital inflows and currency depreciation, a significant improvement of current account deficits over this year and the next should be expected. The IMF predicts a decrease of the current account deficit of more than 50% on the CEE-average by 2010. The deficit in the state budgets are consistently lower in the CEE countries than in most of the EU-15 member states and have declined significantly in the past years, improving the countries’ macroeconomic risks (Poland 45% of GDP; Czech Republic, Slovakia and Romania under 30%, Bulgaria 15%; Ukraine under 12% and Russia under 5% of GDP, compared to the eurozone average of 66% of GDP). The total foreign indebtedness (including companies and private households) only reaches the 100% of GDP mark in few CEE countries (Hungary 121%, Bulgaria 112% and Slovenia 104%). In comparison: Germany had gross foreign indebtedness of more than 150% of GDP in 2008 and Austria even had 211% of GDP. The spread of the financial market crisis increases the likelihood of a deterioration of risk positions, particularly regarding international liquidity. However, in retrospect, the CEEregion has been able to abandon its high-risk investment region since the fall of the iron curtain. According to the National Bank of Austria, the risk-coefficient as the sum of all investment risk factors (such as the level of inflation or the GDP per head - but for transparency reasons 4 Economic and Financial Situation in CEE countries, SPCR, 2009 (http://www.spcr.cz/cz/dokumenty/cee_common.pdf) excluding the current liquidity risk) has diminished from 43% to 25% in the last ten years prior to the financial crisis in the new EU-member States. The CEE countries are a vital driving force for the European Union as a whole, contributing to the process of structural change and modernisation that is intended to make both the EU Member States and their companies more efficient, flexible and competitive. CEE countries now have highly efficient industrial facilities, competitive wage levels, higher productivity growth than the west, and well-trained, flexible and dynamic work forces. The CEE remains a region with strong fundamental data and excellent long-term growth and income opportunities. Although the catching-up process of the CEE countries will come to a standstill during the years 2009 and 2010, the positive growth differential towards the euro area will be re-established by the year 2011 according to the latest IMF economic outlook. All CEE federations have helped to initiate the necessary changes in the political, economic and social systems of their countries in recent years. Based on their valuable experience and dynamism, this group is convinced that strong cooperation in Central and Eastern Europe will bolster efforts to deal with the financial crisis, both regionally and in Europe as a whole. Source: CEE Quarterly Q309, UniCredit Research, 2009 Actual situation in Poland Recession in the world economy has deepened and the forecasts of economic growth for 2009 have been further lowered by National Bank of Poland. At the same time, some macroeconomic data and economic climate indicators currently point to the possibility of the activity decline in the world economy decelerating over the next few quarters, including the weakening of recession in the United States and – to a lesser extent – in the euro area in 2009 Q2. The reduction of current and forecast economic growth, apart from the developed economies, also affected the developing countries, including CEE countries. The weakening of the aggregate demand and an earlier drop in commodity prices connected with the deterioration of the global economic climate contributed to decline in inflation in most of the countries. The latest information on the Polish economy confirms that economic activity has been continuing at a low level. Slowing growth is driven by the recession abroad, deteriorating situation in the labour market and worse financial standing of enterprises, as well as limited credit availability. Demand is additionally dampened by the relatively weak sentiment of economic agents, although recently there has been some improvement in confidence indicators. Following a significant drop in 2008 Q4, the annual growth of prices of consumer goods and services in Poland gradually increased over the first four months of 2009 – from 2.8% y/y in January to 4.0% y/y in April, and in May it slowed to 3.6% y/y, yet remaining above the upper limit for deviations from the NBP inflation target. The elevated level of inflation was supported by growth in food prices, regulated prices and the prices of excise goods. In line with expectations formulated in the previous Report, another important factor conducive to higher inflation was a strong weakening of the zloty in the second half of 2008 and at the beginning of 2009. Higher inflation was also driven by the inertial character of inflationary processes and relatively high price hikes in 2008. In the period January–April 2009 all core inflation measures increased, which shows that CPI rise in those months resulted not only from changes of its components particularly sensitive to shocks. May 2009 brought further rise in core inflation net of food and energy prices driven by a rise in excise tax rates and the consequences of the previously observed zloty depreciation. Inflation expectations of bank analysts gradually declined and in June increased to 2.4%. In turn, the objectified measure of inflation expectations of individuals, following the decline in the period March–April, picked up again in May and June 2009 (to 3.8%), which was mainly connected with higher rate of current inflation. In 2008 Q4, import prices expressed in PLN rose strongly further (by 5.3% y/y compared with 6.0% y/y in 2008 Q3) reflecting the strong depreciation of the zloty nominal exchange rate. However, the decline in commodity prices, including prices of oil on global markets, observed in the second half of 2008 had mitigated this rise. At the same time, as a result of further drop in export prices (albeit smaller than in the preceding quarters) the terms of trade continued to deteriorate. Following a strong decline in 2008 Q4, at the beginning of 2009 oil prices were relatively stable due to further drop in demand for fuels accompanied by ongoing output reduction by the OPEC countries. However, as from mid-March 2009 oil prices have been on the increase, amidst better sentiments in the financial markets and economic recovery expected to occur in the US economy already in 2009. In June Brent crude oil price again exceeded 70 USD/b – the highest level since October 2008. In 2009 Q1 PPI rose and reached 5.0% y/y. Due to the depreciation of zloty exchange rate and the ensuing higher growth of producer prices of exported goods, the PPI in the domestic market ranged below the total PPI (at 4.3% y/y in 2009 Q1). Looking at monthly data it should be emphasised that since February 2009 both total PPI and PPI in the domestic market have been declining. According to GUS estimates, in 2009 Q1 Poland’s GDP rose by 0.8% y/y (compared with 2.9% y/y in 2008 Q4), i.e. below the expectations of the previous Report. Private consumption remained the main factor in GDP growth with a slightly positive contribution of investment. Due to the recession abroad polish exports decreased markedly, but the concurrent significant drop in imports connected, among others, with the deteriorating economic climate in Poland and the earlier depreciation of the zloty resulted in a positive contribution of net exports to GDP growth. The significant weakening of the zloty in the second half of 2008 and at the beginning of 2009 favoured improvement in competitive- ness of Polish products and thus was a factor supporting GDP growth. In turn, economic growth was curbed by a significant fall in inventories. In 2009 Q1 private consumption growth amounted to 3.3% y/y (compared with 5.3% y/y in 2008 Q4) and was in line with the expectations. The quickly deepening recession in the euro area in 2009 Q1 contributed to a strong weakening of the Polish exports, however, deeper decline in imports than exports resulted in a significant shrinking of the negative trade balance in January– March 2009. In quarter-on-quarter terms, following a rise in 2008 Q4, the current account deficit in 2009 Q1 decreased significantly – and in relation to GDP (in terms of four quarters) fell down to 4.2% at the end of 2009 Q1 (compared with 5.5% at the end of 2008 Q4). In turn, the combined current and capital account deficit in relation to GDP decreased to 3.2% at the end of 2009 Q1 (from 4.4% at the end of 2008 Q4). At the end of 2008 Q4 Poland’s foreign debt amounted to approx. EUR 172 billion, which is 56% of GDP (compared to 48% at the end of 2007). Approx. 37% of this amount is due for repayment in 2009 (i.e. EUR 64 billion), however the structure of the debt indicates a low risk of problems with foreign debt servicing this year. According to the Ministry of Finance’s preliminary estimates, in the period January–May 2009 the state budget recorded a deficit of PLN 16.4 billion, i.e. 90.2% of the annual plan. Situation of the budget primarily reflects lower than planned actual budget revenues. At the same time, it should be emphasised that under current circumstances any excessive expenditure cuts may have a cyclical effect and contribute to deepening the economic downturn, especially if such cuts would threaten the efficient utilisation of EU funds. In 2009 Q1 demand for labour weakened significantly. Although the number of working persons according to BAEL (Labour Force Survey) continued to grow in annual terms, the growth declined, whereas in quarterly terms (seasonally adjusted) it fell down to zero. Since the end 2008 the employment in the corporate sector dropped by 61 thousand per- sons and in May 2009 it was lower by 1.7% y/y than in the corresponding period of the previous year. On the other hand, the number of persons working in the economy (in entities employing more than 9 employees) declined by 1.0% y/y in 2009 Q1. Despite negative changes in the labour market in 2009 Q1 labour supply continued to rise. The number of economically active persons rose by 1.5% y/y to 17 128 thousand. A considerable de- cline in demand for labour accompanied by an increase in labour supply translated into a rise in the unemployment rate, both BAEL-based (to 8.3% in 2009 Q1) and registered unemployment (to 11.0% in April 2009). A significant decline in demand for labour translates into developments of wages, however, due to some nominal rigidity the growth of wages responds to changes in labour demand with some lag. Following the decline in 2008 Q3 and Q4, the growth of nominal wages in the economy in 2009 Q1 remained at the level recorded in the previous quarter and stood at 6.8% y/y. On the other hand, the wage growth in the corporate sector was decreasing relatively fast (to 4.8% y/y and 3,8% y/y in April and May 2009 as compared with 6.3% y/y in 2009 Q1 and 7.2% y/y in 2008 Q4). A relatively slow adjustment of the labour market situation to the strong weakening of activity in the Polish economy was reflected in – characteristic for this stage of business cycle – labour productivity drop and an increase in growth of unit labour costs. In addition to the foregoing interest-rate decisions the Fed, the ECB and the SNB have taken unconventional measures consisting in these banks’ direct interventions in the credit markets. In Poland in February and March the Monetary Policy Council reduced the reference rate by 50 basis points to 3.75%. As the NBP interest rates were kept unchanged in Apríl and May, the expectations concerning the future value of the reference rate changed – currently the majority expects the NBP rates to remain above 3.00%, whereas in the survey of 10 February 2009 75% of respondents anticipated rates of between 2.50 and 3.00%. Initially, following interest rates cuts, WIBOR 3M interbank rates decreased, however, subsequently it began to rise again and between the end of May and 17 June it stood at 4.61–4.64%. Since WIBOR rates are not transactional they do not necessarily reflect the level of actual market rates. The elevated level of WIBOR rates may be driven by banks’ attempts to increase their revenues from loans in a situation of high costs of attracting new deposits. Between March and June 2009 yields on US and euro area Treasury bonds have risen, which was primarily due to the decline in risk aversion in the global financial markets and in investors’ lower demand for government securities issued by developed countries. The yields on Polish bonds have changed to a small degree. The situation in the domestic equity market reflected the overall sentiment prevailing in international markets. January witnessed a steep decline in indexes, which was continued into February when WIG20 sank to its lowest level since July 2003. At the end of February, however, share-price declines, together with zloty depreciation, came to a halt, preceding similar developments in international markets where the stock-market sell-off ended only in March. In March and in April rebounded strongly, in May share prices moved within a horizontal price range but in June the indexes soared again. In the period 18 February–17 June 2009 WIG20 rose by 34%. The situation in the housing market has remained broadly unchanged since the beginning of 2009. In line with earlier forecast, in 2009 Q1 the major property market saw deepening imbalance between rising new flats supply and demand. In the context of restricted avail- ability of housing loans, purchasers’ expectations of further fall in the prices of flats and deteriorating economic outlook, a slight decline in flat prices could not significantly stimu- late the growth in demand. In 2009 Q1, similarly to the second half of 2008, asking prices of flats continued a moderate decline. According to data available for the seven biggest city markets, in 2009 Q1 also transactional prices in the secondary market continued to decline, at the average rate surpassing that of 2008 Q4. The second half of February 2009 brought a reversal of the depreciation trend of the zloty nominal exchange rate vis-a-vis the euro, the US dollar and the Swiss franc. The zloty had been strengthening till mid-April but it weakened subsequently. Between 18 February and 17 June the zloty appreciated against the US dollar, the euro, and the Swiss franc by approx. 17%, 8% and 10%, respectively. Due to the continuing downturn, a negative assessment of enterprises of their sales perspectives and further tightening of the credit policies of banks, the increase in the value of loans granted to enterprises in 2009 was halted – in January–April 2009 loans rose by only PLN 0.5 billion. As regards loans to households, their growth in 2009 decelerated as well, which was primarily connected with a significant reduction of lending in the housing loan segment (in January–April 2009 its increase amounted to PLN 4.7 billion, compared to PLN 13.6 billion recorded in the corresponding period of the pervious year). The increase of consumer loans also decelerated, though to a smaller extent than of housing loans (in January–April 2009 the level of household indebtedness in this segment of loan market rose by PLN 5.4 billion, compared with a rise of PLN 8.3 billion in the corresponding period of the pervious year). 5 GDP projection, NBP, 2009 Inflation projection, NBP, 2009 5 Inflation Report, NBP, June 2009 Current situation in Hungary Over the past quarter, the rapid adjustment of the Hungarian economy to the changed global economic environment in the wake of the financial crisis continued. The decline in GDP was in line with the forecast in the May Report. However, the fall in output was associated with a larger drop in domestic demand and, consequently, a stronger improvement in external balance than projected in May. The domestic disinflation trend, observed since the middle of last year, stalled in 2009 Q2, and inflation began trending up again. However, this is likely to have been the result of transient factors, such as the depreciation of the exchange rate and increases in indirect taxes, with the disinflation effects of the decline in domestic demand becoming increasingly evident. The projection in the August Report is based on the key assumptions that i) the central bank base rate is held constant at 8.50%, ii) the forint exchange rate remains at EUR/HUF 272, and iii) the price of crude oil moves around EUR 50 per barrel. Provided that these assumptions hold, the Hungarian economy is likely to remain in recession for a protracted period. In the current projection, the pace of decline in the economy slows over the period to the middle of 2010, then growth picks up from the second half of the year. Inflation is expected to remain below the target on the horizon relevant for monetary policy. However, the consumer price index is likely to be significantly above the level consistent with price stability over the next year, due to the increase in indirect taxes. Tough the risk assessment became more balanced compared to May, we still perceive upside risks to inflation, and downside risks to growth around the baseline projection. Despite the significant appreciation of the forint vis-à-vis the euro, the projection for inflation has not been altered substantially relative to May for two reasons. Both, the sharp rise in oil prices and the revision of the potential output of the Hungarian economy, implying weaker disinflation impact of falling domestic demand, offset the effects of the stronger exchange rate. There have been shifts in global investor sentiment over the period since the May Report; however, it has improved overall. In the early part of the period, i.e. in June, developed markets were characterised by uncertainty, a wait-and-see attitude and moderate movements in asset prices. From July, however, investor appetite for risk increased again, as a number of positive macroeconomic data were released. Equity indices rose and implied securities market volatilities fell. Several indicators climbed back to levels witnessed during the period before the failure of Lehman Brothers in the autumn of 2008. The risks associated with the external financing of the Hungarian economy have diminished significantly since May, as reflected in falls in country risk premium and the appreciation of the exchange rate. The major factors behind this were the government’s measures aiming at achieving fiscal sustainability and an improvement in external balance as a result of the adjustment of the real economy, in addition to improvements in sentiment in international financial markets. In 2009 Q2, private sector borrowing was driven mainly by moderating macroeconomic activity and banks’ falling appetite for risk. The banking sector’s liquidity position was adequate over the period. Outstanding bank lending to the corporate sector fell, while household credit stagnated. Overall, borrowing by the private sector was broadly in line with the forecast in the May Report. According to data available for the first half of the year, the contraction of the economy was most markedly reflected in the decline in industrial exports closely determined by the weakness of global economic activity. However, there was a generalised decline across the entire private sector. In response to the deterioration in sales prospects and financing, the corporate sector reduced stocks sharply and cut back investment spending. However, one-off factors observed in the energy and automobile industries are a cause for concern in terms of the pace of de-stocking by firms. Corporate adjustment in the labour market continued at a moderating pace. Although earnings growth was sharply lower than in the previous year, the moderation in the rate of growth slowed down considerably in Q2. In addition, the decline in employment in the private sector also moderated, with the decline in whole-economy employment coming to a halt, due to an increase in public sector jobs. Labour market data suggest a less sharp adjustment in employment and wages compared with the forecast in the May Report. This, however, is surrounded by a greater degree of uncertainty. Statistical and methodological differences across the various data sources make it more difficult to assess labour market developments over the past months. Net financial savings of households rose markedly over the past few quarters. The improvement in the sector’s financing position was caused by a significant decline in borrowing, while the accumulation of financial assets eased slightly compared with previous quarters. On the demand side, the former was closely related to households’ more cautious borrowing decisions due to increased income uncertainty and falling employment, which was complemented, on the supply side, by a tightening in credit conditions due to banks’ falling appetite for risk. The slowdown in financial asset accumulation by households may have been the result of consumption smoothing behaviour offsetting the effects of falling real incomes and tightening credit conditions. Annual consumer price inflation rose in Q2, due in large part to stronger-than-expected increases in the prices of seasonal foods and vehicle fuel. However, the earlier decline in core inflation also stalled, explained by the effects of the rapid depreciation of the forint up to the first quarter of the year. The lower-than-expected July data however, refer to a continous effect of low demand on prices, and in connection with this, trend inflation declined slowly in the latest few month. In the current projection, the Hungarian economy continues to decline up to the middle of 2010, on account of two factors. First, according to international forecasts, the recession in Europe may be more prolonged: economic growth is unlikely to recover considerably in the developed regions of Europe until the second half of 2010. Second, the pro-cyclical behaviour of the banking sector and fiscal policy may aggravate the contraction and may cause the recession of the domestic economy to be more protracted. From 2011, however, economic growth is expected to recover sharply. On the one hand, the Hungarian economy, with considerable amounts of spare capacity, may respond vigorously to a quickening in the pace of global economic activity and, on the other, the positive effects of the government’s measures on competitiveness are likely to be felt more widely across the economy as a whole. However, one factor representing a downside risk to growth is that, while the projection reflects the likely impact of the tax measures already adopted for 2011, it does not take into account the effects of actions necessary to make up the shortfall in revenue in the absence of an approved government budget. Provided that the baseline assumptions hold, inflation may rise above 6% by the end of the year, due to the indirect tax increase. Inflation is expected to fall gradually from the beginning of 2010, followed by a very low inflation environment from the middle of the year. One explanation for this is that, as the effects on prices of the increase in indirect taxes fade, the general macroeconomic environment will be strongly disinflationary: the negative output gap will slow attempts to raise prices. There are slight upside risks to the outlook for inflation. One is the persistence of inflation expectations, the second being the possibility that, as part of the necessary adjustment measures, the government in 2011 will raise administered prices by more than assumed in the baseline projection to achieve a further reduction in deficit. However, potentially stronger adjustment in the corporate sector than assumed in the baseline projection represents a downside risk to inflation. According to the August baseline projection the below 4% deficit target could be achieved if stability reserves in the budget are not fully spent. In 2010, the higher wage bill projection compared to May improves the budgetary position, and the deficit target agreed to with international organisations seems likely to be met in the baseline scenario. In the conditional forecast, the government deficit rises sharply in 2011, mainly as a result of the tax reductions already approved but not yet offset by measures to improve the fiscal balance. The risks to the government deficit lie to the downside in the short term and upside from 2010. Larger risks are perceived in the feasibility of tight expenditure control plans. Stronger improvements in the real economic balance and a deeper fall in risk spreads compared with earlier expectations are likely to result in a sharper reduction in the external imbalance in 2009 than projected in May. The main reason for this development may have been faster-thanexpected corporate sector adjustment, which, in turn, was caused by falling inventory holdings and the postponement of corporate investment projects, in addition to gradually consolidating sales data. In 2010–2011 Hungary’s external financing requirement is expected to fall slightly further. This, however, is mainly related to an expected increase in EU transfers, as the effect of stronger export growth in response to a tentative recovery in external activity may be offset by rising import demand due to higher domestic demand. A slight drop in external debt may lead to lower interest expense; however, this is likely to be offset in part by the negative impact on the income balance of an increase in earnings of foreign-owned companies. 6 Inflation Projection, MNB, 2009 GDP Projection, MNB, 2009 Current situation in Czech Republic Inflation continued falling in 2009 Q2 and fluctuated below the lower boundary of the tolerance band of the CNB’s inflation target.The decline of the Czech economy deepened significantly in 2009 Q1. The Bank Board lowered monetary policy rates by 0.25 percentage point in May 2009. The current forecast expects the decline in economic activity to bottom out this year and the economy to grow slightly next year. Inflation will be at low levels below the inflation-target tolerance band for the remainder of 2009. In the course of 2010, inflation will start rising, reaching the 2% inflation target at the end of the year. Consistent with the forecast is a decline in market interest rates this year followed by a gradual rise from 2010 H2 onwards. At its meeting in August the Bank Board assessed the risks of the forecast as being slightly anti-inflationary overall and decided unanimously to lower monetary policy rates by 0.25 percentage point. The exchange rate of the koruna moved for the most part within a relatively narrow range in 2009 Q2. In late July, however, the koruna appreciated and stabilised at this level at the close of June 6 Inflation Report, MNB, August 2009 and in the first two-thirds of the following month. The exchange rate appreciated further at the end of July. The koruna’s rate against the dollar appreciated continuously, reflecting the depreciation of the dollar on global markets. In the absence of significant fundamental stimuli from the Czech economy, the koruna’s exchange rate was affected primarily by improved financial market sentiment towards Central and Eastern European currencies. A continuing decline in external demand linked to the global financial and economic crisis led to a further sharp weakening of domestic economic activity in 2009 Q1. The biggest contributor to the more than 3% year-on-year decline in domestic GDP was gross capital formation (additions to inventories in particular). By comparison, the negative growth contribution of foreign trade was roughly half as large. Conversely, household and government expenditure on final consumption had a pro-growth effect. The latest available data on developments in industry, construction and retail trade indicate a continued decline of the Czech economy in 2009 Q2. In conditions of falling output, the labour market situation continued to deteriorate. The annual growth in employment switched to a modest decline in Q1. However, it still lagged behind the fall in production, so labour productivity decreased year on year. The number of vacancies continued falling and the unemployment rate surged. Nominal wage growth slowed sharply, particularly in the business sector. The decline in real wage growth was less pronounced owing to a further fall in inflation. Data from the industry and construction sectors for April and May indicate continuing subdued wage growth and falling productivity in 2009 Q2. Inflation declined significantly further in 2009. It was more than one percentage point lower in June than in March. The slowdown in annual consumer price inflation was due mainly to the fading lagged effects of changes to indirect taxes and slowing growth in regulated prices. The effect of market prices, i.e. adjusted inflation excluding fuels and food prices, was smaller. Monetary-policy relevant inflation, i.e. inflation adjusted for the first-round effects of changes to indirect taxes, will follow a similar path to headline inflation. Owing to the transfer of selected services to the lower VAT rate, this inflation – which the CNB focuses on when deciding on interest rate settings – will be slightly above headline inflation at the end of 2009 and in the first three quarters of 2010. The forecast assumes that the economic decline bottomed out in Q2 and the Czech economy is expected to show quarter-on-quarter growth as from 2009 Q3. However, the sharp fall in GDP observed at the start of the year will pass through to a year-onyear decline in GDP for the remainder of the year. The Czech economy is expected to decline by almost 4% for 2009 as a whole. In 2010, however, the forecast expects weak economic growth of less than 1%, in line with the recovery in external demand. A more pronounced economic recovery of over 2% will be seen in 2011. Consistent with the forecast is a decline in market interest rates this year followed by a modest rise from 2010 H2 onwards. The nominal exchange rate of the koruna is modestly appreciating over the forecast horizon. The appreciation pressures stem mainly from the positive interest rate differential, which will persist for about another year, and from a recovery in external demand. 7 7 Inflation Projection, CNB, August 2008 Inflation Projection, CNB, 2009 GDP Projection, CNB, 2009 Current situation in Slovak Republic The annual inflation rate in the euro area, as measured by the Harmonised Index of Consumer Prices (HICP), fell further into negative territory in July (to -0.7%). According to a flash Eurostat estimate, the decline in the euro-area economy deepened in the second quarter of 2009 by 4.6% compared with the same period a year earlier. The exchange rate of the euro against the dollar at end-July was at the same level as at end-June. At its August meeting, the Government Council decided to leave the key ECB interest rates unchanged. The rate for the main refinancing operations remained at 1.00% and the rates for the marginal lending and deposit facilities at 1.75% and 0.25 %, respectively. In the central European region, inflation continued to slow in the Czech Republic in July, while Hungary and Poland recorded a rise in price inflation. According to a flash Eurostat estimate, the Czech economy contracted further in the second quarter of 2009 (by 4.9% year-onyear), as well as the economy of Hungary (by 7.9%). The currency depreciation in the region, ongoing since the beginning of July, came toa halt in the second third of the month, and the exchange rates started to appreciate as a result of domestic fundamentals. The appreciating trend lasted until the end of July. Compared with the end of June, the Polish zloty recorded the steepest appreciation vis-ŕ-vis the euro. Magyar Nemzeti Bank lowered its key interest rate by 1 percentage point (to 8.5%) at the end of July and Česká národní banka by 0.25 of a percentage point (to 1.25%, a historical low) at the beginning of August. After a reduction in June, Narodowy Bank Polski left its reference rate unchanged in July. Slovakia’s annual inflation rate dropped by 0.1 of a percentage point in July, to 0.6% (the lowest level since the start of HICP monitoring). HICP inflation was lower than expected by NBS, mainly because of a sharper than predicted fall in seasonal food prices and a slower rise in fuel prices. Weaker year-on-year price dynamics were recorded in almost all the basic HICP inflation components. The only inflation component that remained unchanged on a year-on-year basis was energy prices. In producer prices, June saw a further year-on-year fall in manufacturing products prices and building materials prices. The year-on-year decline in agricultural prices slowed. Among the price indices under monitoring, a fall was also recorded in the prices of flats: the average price per square metre dropped by 13.4% in the second quarter of 2009. According to a flash estimate by the Statistical Office of the SR, real gross domestic product at constant prices contracted by 5.3% in annualised terms in the second quarter of 2009, with overall employment falling year-onyear by 1.3%. Compared with the expectations, GDP recorded a sharper fall in the second quarter of 2009. On a quarter-on-year basis, however, the economy recorded an increase, suggesting that recession probably reached its deepest phase in the first quarter of 2009. In June, the current account balance deteriorated in comparison with May, from a surplus in May to a deficit in June. The year-on-year fall in the industrial production index continued to slow in June, and the decline in construction moderated. In the key industries, some of the major producers increased the volume of production and extended the working hours, to satisfy the growing demand. The July business tendency surveys in industry recorded a marked improvement in the indicator of expected production, a modest increase in demand, and a decrease in inventories. In June, revenues in retail trade, wholesale trade, the sale and maintenance of vehicles recorded a certain slowdown in the year-on-year decline, compared with May. On the other hand, revenues from accommodation and food service activities continued to fall. The overall indicator of economic sentiment followed a positive trend in July, when confidence in industry increased, as well as consumer confidence. A slight fall in pessimism was recorded in construction. Confidence in services and retail trade showed a negative tendency. After a slowdown in the previous month, the yearon- year dynamics of nominal wages accelerated in June. The most rapid wage increases were recorded in selected market services, retail trade, food service activities, and industry. The dynamics of real wages decelerated, but to a lesser extent than in May. Wage statistics from the sectors under review indicate that the rate of nominal wage growth in the economy as a whole slowed in the second quarter of 2009, compared with the previous quarter. In June, employment fell more rapidly than in the previous month, mainly in selected market services, food service activities, and wholesale trade. The rate of registered unemployment rose month-on-month by 0.4 of a percentage point, to 11.8% in June. June saw a marked decrease in deposits (due partly to dividend payments) and an increase in the outstanding amount of loans received from monetary financial institutions in the private sector. Loans to non-financial corporations continued to fall, while the volume of loans to households grew still further. The main determinant of growth in lending to households was increased demand for house purchase loans. The volume of loans for consumption continued to grow as in the previous months. The ECB left its key interest rates unchanged in June. Interest rates on loans to non-financial corporations followed different trends, depending on the amount of the loan provided. Lending rates for large corporations dropped, while interest rates on loans to small and medium-sized enterprises continued to rise. Interest rates on loans to households remained virtually unchanged. Most significantly affected by interbank market developments were deposits from non-financial corporations: the fall in shortterm rates was immediately reflected in the falling level of rates for current accounts, and in other short-term customer interest rates. Interest rates on household deposits continued to stagnate. 8 8 Monthly Bulletin, NBS, July 2009 Conclusion Comparison of different economies in Central Europe region shows different situation in these countries. From the perspectives of GDP growth, the best position has Poland, which is quite big economy with strong domestic demand. Situation is different in other countries. Slovakia is oriented mainly on automotive industry, so decline in foreign demand had destructive effect on Slovak industry. Similar situation is in Czech Republic, which is also oriented mainly on automotive industry, but not so much as Slovakia. Czech Republic was given hand from western countries governments by paying their citizens for buying new cars. Different situation is possible to see in Hungary. Hungary has long-time debt problems – debt is very high, partly because of government sector, but also private sector and individuals’ indebtedness. After IMF lent Hungary money, situation is getting better, but still, Hungary is one of the countries with worse outlook for the future. So every country in CEE region is in different situation and possible investors should differentiate from country to country and do not look on the region as a whole. References 1. Current financial Crisis, PPF 2008 2. CNN Bailout Scorecard (http://money.cnn.com/news/specials/storysupplement/bailout_scorecard/index.html) 3. Economic and Financial Situation in CEE countries, SPCR, 2009 (http://www.spcr.cz/cz/dokumenty/cee_common.pdf) 4. CEE Quarterly Q309, UniCredit Research, 2009 5. Inflation Report, NBP, June 2009 6. Inflation Report, MNB, August 2009 7. Inflation Projection, CNB, August 2008 8. Monthly Bulletin, NBS, July 2009 9. Mortgage Bankers Association (2007-06-12). "Delinquencies and Foreclosures Increase in Latest MBA National Delinquency Survey". Press release. http://www.mbaa.org/NewsandMedia/PressCenter/58758.htm. Retrieved 2008-07-13. 10. Roubini, Nouriel. "Roubini - More Doom Ahead". Foreignpolicy.com. http://www.foreignpolicy.com/story/cms.php?story_id=4591. Retrieved 2009-02-27. 11. [http://www.federalreserve.gov/newsevents/speech/bernanke20070911a.htm Chairman Ben S. Bernanke, At the Bundesbank Lecture, Berlin, Germany September 11, 2007: Global Imbalances: Recent Developments and Prospects]". Federalreserve.gov. http://www.federalreserve.gov/newsevents/speech/bernanke20070911a.htm. Retrieved 2009-05-03. 12. Ari Levy and Margaret Chadbourn. "Bank of Wyoming Seized; 53rd U.S. Failure This Year (Update1)". http://www.bloomberg.com/apps/news?pid=20601087&sid=agpbmkGrsbu4. Retrieved 2009-07-10. 13. Economist-Understanding Foreclosure Drivers". Economist.com. 2009-02-19. http://www.economist.com/world/unitedstates/PrinterFriendly.cfm?story_id=13145239. Retrieved 2009-02-27. 14. World Economic Outlook Update, IMF, July 2009