ExpoGlobus.com

The economic crisis affected the countries of the world in different ways. In Germany, the decline in production is unprecedented in the whole post-world war era. Russia’s economy is struggling through another troubled time, consuming gigantic gold and foreign currency reserves, while Ukraine is balancing on the verge of a default. Poorly integrated in the world economy, Kazakhstan shows a moderate pace of decline in comparison to other CIS-states.

The banking crisis has caused a severe lack of credit resources, which shapes the current economic situation for the majority of countries. The financial crisis gave birth to an industrial crisis, inevitably causing a slump in production. Against this background, the voices of experts sound discordantly: Some predict a quick economic renaissance; others intimidate us with talk of a prolonged worldwide depression.

Gross Domestic Product 2009 (forecast)
GDP 2009
Germany — 3—6.4%
Russia — 8—10%
Ukraine —12—15%
Kazakhstan — 1.5 %

Germany sets anti-records

The gravity of the situation is revealed by the world trade index: This year, it fell to the lowest level in its more than forty years of existence. This was a big blow to Germany, the world champion in export volume. According to Deutsche Bank Research, in the first four months of 2009, the country’s industrial production decreased by 22% in comparison to the same period the previous year. This year’s total decrease of export volume will be 18%. Both figures are unprecedented in the post-war history of the country.

Russia: strength test

The decline in the oil price forced Russia to encounter the first serious consequences of the crisis back in the fall of 2008. The further the more. The decline in industry during the first half-year of 2009 was 14.9%, while an overall decline of 12.5% is expected for the whole year. The greatest losses will be borne by the sectors of metallurgy, mechanical engineering, construction materials, and to a lesser extent, by the food industry and the fuel-energy complex.

According to Alexander Rahr, director of the Russia/Eurasia Center of the German Council on Foreign Relations (DGAP), the Russian situation is totally different to that in western economies or CIS neighbor-states: “Russia owns a colossal sum of money, which was not spent in the first half-year of 2009, as was often predicted. Not yet. Thus, Russia still has a solid buffer that will last for a year of financial crisis, or even two. 420 billion dollars is a great amount of money.” According to the expert, the crisis offers Russia a unique opportunity to diversify and restructure its economy. One cannot rely on oil and gas alone.

Ukraine: metal exports die

Like Russia, the GDP of Ukraine has been growing at a fast pace in recent years, but Ukraine has suffered enormously in the recent crisis. The country was among the five biggest metal exporters in the world during the last decade, and the change in the world economy has dealt a huge blow to the branch: In the first half-year of 2009, metal exports declined by 39.3%. However, the record holder in this discipline is mechanical engineering with a negative of 48%. Ukraine’s export volume decreased by 40% in total. What worsens the situation is that Ukraine cannot dispense external credits: If there was no stabilization credit by the IMF, the country would have had to declare a default due to external liabilities. Since the beginning of the crisis, the hryvnia has lost 40% of its value.

The situation of industry financing is critical. Recently, the government used drastic measures: It allowed state-owned companies to switch to a barter structured mutual settlement of accounts.
And one should not forget that the presidential elections will be held in Ukraine in January 2010, thus many political decisions may have a populist touch. This complicates efforts to act efficiently to overcome the consequences of the crisis.

Kazakhstan: neither bad nor good

In Kazakhstan, serious financial difficulties had already started in 2007. This was not connected to global events, but was due to internal reasons: a crisis on the market of mortgage lending and the tremendously high foreign debts of Kazakh banks. Two years ago these amounted to 40 billion Dollars.

The reconstruction of bank debts allowed Kazakhstan to avoid a default. The crisis was a financial one in the first place and barely affected industry. However, a decline began in 2009 (see table 1).

The moderate pace of decline in comparison to Germany, Russia and Ukraine is linked to the low level of Kazakhstan’s integration in the world economy, states Alexander Rahr. According to him, economic growth in Kazakhstan was not as rapid as in other countries, and no severe mistakes that could have impaired the economy were made in Kazakhstan before the beginning of the crisis.

Second wave: Will it …?

GDP 2010(forecast)
Germany 1—2%
Russia 1%
Ukraine 1%
Kazakhstan 1—2%

Economic indicators in different countries show slightly positive signals. We may have reached the bottom of the crisis and now be moving along it. Governments pumped a lot of money into the financial system which caused the large banks to recover quickly, despite many pessimistic expectations. German Deutsche Bank, American Morgan Stanley, J.P.Morgan Chase, Goldman Sachs, Swiss Credit Suisse and the British Barclays are again recording profits in the range of billions.

Nonetheless, the financial system is still under threat. The biggest risks are overdue credits. According to the German consulting company Creditreform, the bankruptcies of 35,000 companies can be expected this year. In this case, the volume of overdue credits will amount to 44 billion Euros.

The International rating agency Fitch Ratings analysed the situation in Russia: In the worst case scenario, the problematic debts of Russian companies towards banks could reach 40% of the banks’ credit portfolios by the end of the year. Ukraine faces a similar problem. Therefore, a wave of bankruptcies of middle-range banks cannot be excluded, which would destroy the first shoots of economic stabilization.

The importance of the issue is shown by the situation of the American bank CIT, which specialises in credit support to small and medium sized enterprises and serves a million companies. In the middle of July 2009, when the period of big bankruptcies in the financial branch seemed to be over, CIT suddenly declared insolvency. If there was no external support, the bank would have crashed, thus provoking a chain-reaction of bankruptcies to other financial institutions and placing America’s real economy under very difficult conditions.

These might be just the first splashes of the second wave. But even if this crisis wave does not swamp the recovery, re-establishing the economies will be a long-term process: If the GDP has decreased by 10 or 15%, then years are needed to get back to the pre-crisis levels. The predicted economic growth rate of 1% in 2010 still means a deficit of 5% for Germany, 9% for Russia or 14% for the Ukraine in comparison to the pre-crisis year 2008.

According to American economist Nouriel Roubini, who once predicted today’s crisis when nobody wanted to believe him, the key to ending the world recession is rebuilding the domestic demand in the US. That is because the USA is the largest importer. This indicator still has a minus in front of it.