Emerging Europe sees capital leave

Bloomberg

This compares with net inflow of $241.4 billion in 2008, and $396.1 billion in 2007, the IIF said. "Private capital flows look likely to recover from an especially weak first quarter, but still look set to shift to a net aggregate net outflow," the report said. Net inflows averaged $275 billion in between 2005 and 2008, it said. Economies in Eastern Europe, which grew about 7 percent in the five years through 2007, have been hurt by reduced demand for their exports and a drying up of capital inflows.  

The credit crisis will cause losses of $4.1 trillion by the end of 2010 globally, the International Monetary Fund predicts.Hungary, Belarus, Ukraine, Latvia, Romania and Serbia needed international bailouts to meet refinancing needs as investors shunned emerging markets.Two-thirds of this year’s net repayments to foreign banks will be by Russian banks and companies and most of the rest by borrowers in Turkey and Ukraine, the IIF said.

Net inflows of foreign private capital should be sustained in central Europe, supported by ongoing direct investment and continued backing from foreign parent banks for their subsidiaries, the report said.The waning demand for exports combined with a credit crunch will cause gross domestic product to contract in all the eight countries.

The institute estimates GDP falling by a combined 6.9 percent, with Ukraine being the hardest hit, with a 16.7 percent contraction. Russia’s economy will shrink 8.7 percent, and Turkey 7.5 percent, according to the institute.

Poland’s economy will contract the least, at 1 percent, it said.The five east European EU members included in the report are Bulgaria, the Czech Republic, Poland, Hungary and Romania.