Slovakia GDP likely to be 4.1% in 2010 & 4.5% or more in 2011

Economies in the CEE region are expected to grow 2.8 % in 2010 and 3.4 % next year, reads the latest World EconomicOutlook drawn up by the International Monetary Fund. (IMF)

Similarly to western economies, the prognoses for individual countries in the CEE region vary in dependence on the impact of the economic crisis but the GDP in Slovakia is supposed to rise the most, namely 4.1 % this year (which is the most within central Europe and the euro zone) and 4.5 % in 2011.

This is obviously a fantastic prospect when despite the difficult times Slovakia and Bratislava in particular are recovering strongly. This wconfirms our long-term view that the durability of Slovakia's policies are helping the small nation converge with the living standards of Germany and other open and competitive economies in the eurozone.

Greece heading for a default

So the focus was almost entirely on Greece and there are less people feeling that there will be a contagion as the greek situation is special due to the recklessness of the previous 9-10 governments. The apparently precarious position of its banks added to negative sentiment built up from the country’s funding problems and the disjointed response from eurozone leaders. At these yields deficit reduction is unworkable and it appears that external support will be necessary, though the government continues to insist otherwise. Trichet’s intervention and the confirmation that the ECB will be extending its relaxed collateral rules – essential for Greek banks – stemmed the widening tide and brought spreads back in during the afternoon. Greece’s spreads are now trading around 435bp and the Markit SovX WE is trading at 95bp, with most of the active constituents improving in tandem.

There is no possibility that Greece will default on its debts and no reason to doubt Germany's commitment to an EU pledge to help Greece, the European Union's monetary chief said on Thursday.
Economic and Monetary Affairs Commissioner Olli Rehn told a conference in Brussels that Greek default was not an issue, saying: "There will be no default."

Rehn said he believed Germany was fully committed to doing its part to help Greece, if Greece requests financial assistance, despite the threat of a challenge to the aid package via Germany's courts.

The 16 countries that share the euro single currency agreed the details last week of how they would help Greece if required, including providing bilateral loans in proportion to their economic weight in the euro zone.
Germany would be expected to provide around 8.4 billion euros, according to the package, which will total around 45 billion euros -- 30 billion from the eurozone and 15 billion from the International Monetary Fund.

"I have no reason to doubt the German commitment if needed and if aid were to be requested," Rehn said, despite the possibility of a legal challenge in Germany to German involvement in the bailout mechanism.
Rehn also reiterated his intention to give more teeth to repeatedly breached rules on budget discipline and increase economic surveillance across the bloc to avoid any repeat of the fiscal crisis suffered by Greece.

Reasons why the EU and its the greater european region has good prospects and the Asian mirage is heading for a fall

If you read the financial press there is currently an obsessive focus on the problems of europe, the invincibility of China, with the US assumed to be part of the winners club of nation. This is a myopic vision. For one high commodity prices will be a permanent bugbear of China that will put an ever increasing strain on its growth. Basically Chinese growth has peaked and will continue to fall gradually. China will end up in slow growth before achieving anything like first world status. Its extreme demographics are also harbingers of possible unrest with massive implications for investors there. Asian growth is based on

Andrea Moneta, chief executive of Aviva a huge insurance conglomerate, argues that most people continue to underestimate the potential of Europe and tend to forget that it is by far the world’s largest market for financial products. Europe and its financial backyard such as Russia included, has a population of more than 800m people and is growing. About 40 per cent of the world’s personal wealth is held in Europe. Europeans have personal financial assets of $62,000bn and this is expected to increase by a further $12,000bn during the next five years. And 13 per cent of Europeans’ wealth is invested in life assurance and pensions.

Aviva expects life assurance and pension assets currently totalling $8,100bn in Europe to grow by $1,700bn in the next five years, outstripping other regions such as North America and Asia.
Europe is thus not only a huge market with promising growth opportunities but has the added advantage of a stable regulatory environment, says Mr Moneta, who before joining Aviva 18 months ago was a senior executive at UniCredit. In terms of political, regulatory and even currency risks, Europe still enjoys a lower risk profile than many other regions round the world. All in all, says Mr Moneta: “We see Europe as a good growth story without taking big bets in Asia.”

The rise of China and why its all a big mistake and bubble

It is not often that the chief economist of Goldman Sachs writes about china in the Financial Times newspaper. 

What they broadly say is:

  1. greek crisis is largely fear of the future that started when unthinkable events like Lehman Brothers collapsed which now has led investors to question everything. Generally the greek furore will die down but the euro will somehow never recover from this.
  2. China is going to continue its meteric rise
  3. USA should continue to allow China to grow despite continuing to be an undemocratic dictatorship with an aggressive military
  4. USA must stop threatening a trade war if china doesn't play ball
  5. We should all let china export its deflation-inducing growth to the world and learn to love China,
  6. there is no bubble in china, its all good

Overall the whole position is highly suspicious, it is offered as a prediction of what is going to happen when it looks more like what Goldman Sachs would like to happen and where it has bet its money. The fact that they are writing articles like this in the FT, betrays alarm that things are not going the way they have bet.

Here are some points that need to be considered:

  • Dictatorships don't end up well in the long run, their internal contradictions build up over time and then cause instability, but this is not going to be a story of peaceful and admirable democratisation like in central europe. Asia is still fairly barbaric in terms of values and there are many military implications because of China's rising military power. These will come to a head in the near/medium future. China is not switzerland, it may well become aggressive one way or another especially if it realises that it is a good way to keep internal stability in the absence of jobs and growth.
  • People like goldman have shown a lemming-like quality in their investing so much on the china story just as they invested so much on the previous US real estate bubble before. For various reasons china's future is going to be far less predictable than its past in the last 30 years, Goldman et al seem to have bet the house that things will continue exactly as they have in the past. It has to be remembered that the last time Goldman was badly caught out and would be bankrupt now if it wasn't for the american taxpayer saving Lehman. Their judgement is impaired, this is not the goldman of the past.
  • There is a massive bubble in China, it seems to be using its savings to produce even more capacity to export to the west at a time when the west does not want to import anymore. China's mercantilism is glaringly obvious now, and its savings in the good times are artificially propping up its economy now (that is if you trust chinese statistics...). The degree of this lopsided hydrocephalic development is underappreciated. The biggest problem china has is that not a lot needs to go wrong for  a vicious cycle to be set in motion, creating the mother of all panics as the people that have plowed investment into china may pull all that out quite suddenly.  This realisation may be the reason for Goldman to be wheeling out its chief economist in the media. More to calm  investors rather than offer insight. There is a distinct Enron-like press management feel to the whole thing.
  • China benefits from the free trade religion in policy in a massive way, trouble is that a big trade war would probably tip china over very rapidly especially as all players seem to have concluded that they all want to pursue beggar you neighbour policies leading to this massive trade war. The biggest loser out of this by far would again be China.
  • There is no political support for current policies towards China, it was never strong but now it is heading very low, and sooner or later policy will shift to match it. 

  • Linear development on unsustainable trends over very long periods of time is not how the world has experienced history. Its exactly when a nation looks unassailable that folly prevails (look at Japan...).