Is there life after the… crisis?
Some time before the Eastern European (EE) states were on the rise. Lithuania, I am originally from, was called “the Baltic tiger” due to a big growth of GDP (from 2003 it started growing from 9.7%, in 2007 reached as high as 11.1%).
However, did these results show real economy growth, or were simply boosting because of money being pumped to the EE countries by the banks, investment funds likewise?
Consumer debt level here before the downturn was not high (household debt starting from 15-20% GDP), and credit institutions constantly set Western states as an example (where household debt was –e.g. in the US- more than 100% GDP, as well as more than 100% of another important indicator - debt as percent of disposable income, and most people actually lived in credit). Still, many of EE people, especially those who actually lived in the Soviet age, did not run into that debt. They would rather save and buy a necessary thing later on. This was probably due to the mentality of the nations here, or socialist education.
What did it bring in?
Everything is now more or less returning to the pre-crisis state. Certainly our government would say it is their merit (Lithuanian prime minister was actually a good example, having cut his salary by 40% along with all the other state expense cut). This certainly affected the consumption, but has created a certain image of government “sharing” the negative aspects of the crisis, at least from an outsider/foreign expert’s side of view.
The WorldBank’s Doing Business 2010 report shows that Estonia and Lithuania are still more comfortable for businesses that, say, such countries as Austria, the Netherlands and France.
The Department of Statistics of Lithuania has just (28 July 2010) announced that the Lithuanian GDP has eventually started to grow again, after showing a negative growth for 1,5 years.
Recent (results announced 23 July 2010) EU bank stress test by the Committee of European Banking Supervisors showed that the EE banks were able to manage the credit risks, and have passed the test (although most of the banks reviewed are not the local, but rather Western banks working in EE). See: http://www.c-ebs.org/EuWideStressTesting.aspx
The Ukrainian banks have cautiously started giving consumer loans now (it was even banned by the National Bank when the hryvnia fell down by 50%.)
EE countries seem to have been able to manage the challenge and actually overcome the crisis.
Now consumer habits have changed drastically. If you do not have much debt, that means you are independent to a certain extent and live according to your income. If you cannot get more credit, the quality of your life might worsen, but you will eventually get along with it. That’s what happened in the EE, and the people are looking with more optimism to the future. And, as they say, one of the main reasons for crisis was actually attitude of the general public to the economic circumstances.
Let’s see if we see any more “tiger” in the EE soon.
Links:
www.worldbank.org – the World Bank. Doing Business
www.stat.gov.lt/en – Lithuanian Department of Statistics.
http://www.c-ebs.org/EuWideStressTesting.aspx
30 July 2010
Andrejus Moksinas is an international credit & collections expert, also an expert at Lithuanian business risk portal (BizRisk.lt)
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