Hungary, Romania and Turkey are also among the markets most at risk due to the occupation of Ukraine
2022. 05. 03. 00:01
Allianz regularly analyzes the most significant market trends in order to help its customers make informed decisions about their operations and living conditions. His two new publications assess the economic and financial effects of the attack on Ukraine, which are already felt in the short and long term.
One of the main findings of Allianz’s analysis is that the economic consequences of the military aggression in Ukraine are holding back the pace of GDP growth, especially in European economies. The company expects trade volumes to rise 4 healthy in 2022, down 2 percentage points from the previous forecast of military aggression.
Dependent on Russia
Russia, one of the key suppliers in the global and regional supply chains, continues to be negatively affected by the attack by the Russian armed forces on Eastern European markets. Energy produced in Russia (oil and gas), metals (eg aluminum, palladium, nickel) and agricultural and food products (eg wheat, maize) play a significant role in the production of other countries. Russia accounts for 9%, 3% and 2% of global exports of these goods, respectively, while Bulgaria (almost 9% of GDP), Lithuania (more than 5% of GDP) and Hungary (more than 5% of GDP) are among the best-served countries. percent) than 2 percent). The product is more dependent on importers than metal products for food and energy products that are easily available from other suppliers. Another difficulty is that the latter can in many cases be used in industrial processes tailored to the specific supplier, so the involvement of a new exporter is not a problem at all and may require modifications to the industrial processes involved.
Some countries have been particularly hard hit by rising fossil fuels and food prices. Allianz predicts that net importers can expect a shortage of goods and then social dissatisfaction. The situation is similar in European emerging countries (eg Poland), which, due to their geographical proximity, has been adversely affected by a number of adverse events in Ukraine.
Analyzes point out that oil stocks are declining, refinery capacities are overburdened, and producers of low-sulfur (and therefore easier to refine) crude oil, such as Nigeria, find it difficult to say more. In the event of a diesel crisis, road haulage will further exacerbate disruptions in global supply chains. The estimated stocks are sufficient for France or Hungary for three months.
Worsening public debt
The financial dynamics of emerging markets and emerging economies (EMDEs), through developments in capital and current account balances, were already unfavorable even before the occupation of Ukraine would have seriously disrupted capital markets. As a result of the anti-inflationary monetary policy introduced by the US Federal Reserve, dollar investments in EMDE countries are becoming less and less attractive. As a result, competition between foreign countries for foreign capital will intensify as US real interest rates start to rise, according to Allianz’s financial analysis, which, based on past experience, could put significant foreign exchange pressure on emerging and developing economies. The longer geopolitical tensions persist and the better supply chains are located, the more difficult it will be for the countries concerned to access foreign capital investment.
Under current conditions, yields on government securities in emerging economies are expected to be broadly but relatively subdued. Yields on securities issued in local currencies will remain high in 2022, but with the mitigation of adverse effects, a reversal may begin in 2023. In the unfavorable case, an increase in the aggression of the Russian armed forces could lead to a much higher inflationary global economic downturn. The deterioration of the basic economic situation in emerging markets and the generalization of capital flows could lead to higher interest rate spreads on hard currency loans and higher yields on government debt in local currencies.
The ratio of the state tax to GDP compared to the lowest level in 2008 has been steadily increasing in the EMDE markets and is now more than double the then level. Bonds in these countries are typically denominated in local currencies, mainly for domestic investors, where international lenders are less involved, especially during peak periods. For a foreign investor, this asset class is in principle more risky than bonds denominated in hard currencies because, in addition to the usual factors such as inflation or growth prospects, exchange rate movements and the fact that local currency and monetary policy is the responsibility of the issuing country. For domestic investors, by contrast, foreign exchange risk is a less specific issue, and government incentives for local financial institutions support stimulating demand for such assets. Based on the assessment of liquidity and cyclical risks, Hungary, Romania and Turkey are among the emerging market countries in Europe. Even in the face of geopolitical stagnation, these countries are expected to restore their economic equilibrium and avoid a deterioration in public debt only at the cost of a serious struggle.
Allianz’s comprehensive analysis aims to provide an overview of current global market contexts so that trends supported by detailed information provide an objective picture of the impact of world events on everyday life. In this way, the company’s customers can start planning their finances with well-founded knowledge. As responsible partners for businesses and individuals, Allianz experts also use the data from the studies to provide personalized insurance and investment advice to provide the best financial service for your needs.