Eurozone risks spread eastwards: ECR Q1 2013


Jeremy Weltman
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Neither CEE nor the Commonwealth of Independent States (CIS) appear to offer more favourable diversification options as their risks increase due to slower trade, weak capital flows and political problems.

Average scores for the CEE and CIS regions have fallen in tandem during Q1 2013, with declines of 0.7 points each, as weakened economies and increased political/regulatory risks affect the investor environment.

While the Cypriot problem was a leading protagonist in dragging the CEE region downwards, there were also notable downward score adjustments for Hungary, Bulgaria, Romania and Montenegro – linked in part to the aftershock from Cyprus – but not for the Czech Republic or Poland.

Those two strengthened, and are both seen – along with Slovakia – as safer (both politically and economically), with fewer fiscal problems or other substantial imbalances.

The drop in scores for Russia and other former-Soviet CIS states is particularly discouraging, as none of the 12 members, with the exception of 62nd-placed Russia on a score of 51.6, previously had a total score of more than 50.

In many cases the score declines – for Kazakhstan, falling four places in Q1 2013 to 79th, Ukraine sliding nine to 118th and Azerbaijan, a one place slip to 82nd – highlight weakened capital access, debt indicators or credit ratings.

As one prominent ECR expert noted, preferring to speak in a private capacity: “The CEE region is significantly affected by negative developments in the eurozone, particularly through trade and financial system linkages.

“Although also affected by these developments, the CIS is more heavily affected by global dynamics, energy/commodity price effects and investor risk perceptions [including idiosyncratic political risks].”