Russia Crisis Makes East European Companies Fret Over 1998 Redux
Shedding communism and embracing the European Union was supposed to shield the former eastern bloc from Russias economic pains. A quarter of a century later, there are companies that remain vulnerable.
The rubles decline is reviving memories of the 1998 default. Moscows former satellites have tied their economic fortunes to western Europe and the proportion of exports to Russia is less than 5 percent, yet the financial turmoil is aggravating the pain caused by the trade confrontation between the 28-member EU bloc and Russia.
A successful year is becoming unsuccessful, said Miroslav Student, the commercial director at Abo valve, a Czech producer of butterfly and check valves for industrial applications. The weak ruble is a headache for us. Its causing financial problems, since our branch there has to pay more rubles for euros, and its also complicating trade.
While the effect on stocks and bonds cant compare with 16 years ago, industries from appliance makers to drug producers to machinery factories across the region are hurting.
Shares of Gorenje d.d. and Krka Group d.d., Slovenias biggest exporters, plunged this quarter on concern the rubles weakening may erode revenue by as much as 50 percent. Sopharma AD, Bulgarias largest publicly traded pharmaceutical company, expects sales to drop. Gedeon Richter Nyrt., Hungarys largest drugmaker, last week warned of a drop in sales and operating profit and a one-time financial loss.
Russia is our biggest market and such drastic currency drops usually lead to refraining from sales for a while until people get psychologically adjusted to the new prices, Sopharma Chief Executive Officer Ognyan Donev said by phone last week. Weve already seen this in Kazakhstan and Ukraine.
Even after Russias importance as a trading partner dwindled following the collapse of communism, its market of about 140 million people remains an important destination for eastern European products.
Data from the International Monetary Fund, compiled by Bloomberg, show exports increased last year as a percentage of trade compared with 1998.
It accounted for 4.3 percent of Polish exports last year, compared with 3.9 percent in 1998. In the Czech Republic, the ratio rose to 3.4 percent from 2.1 percent. In Hungary, they rose to 3 percent from 2.5 percent.
Russia, alongside economic weakness in the euro region, just adds to the headwinds, according to William Jackson, a senior emerging-market economist at Capital Economics in London. He predicted the drop in exports to Russia might erase 0.3 percentage point to 1 percentage point from gross domestic product growth across central and eastern Europe in 2015.
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Russia Crisis Makes East European Companies Fret Over 1998 Redux