|  2012-11-08

Sovereign debt crisis: Effects on financing and the real economy

Sovereign debt crisis: Effects on financing and the real economy. An International comparison between Romania, Central and Eastern Europe (CEE) and other global markets (Based on the Roland Berger Global Restructuring Study 2012)

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NOT for the first time and probably not for the last time over what is now almost half a decade of economic crisis, managers feel they are heading once again for the "blues"... According to around 600 managers worldwide1, the outlook for the economy as a whole is rather pessimistic. A clear majority of managers in Romania (54%), Central and Eastern Europe (70%), Europe as a whole (62%) and Japan (100%) see a high risk of a renewed economic slowdown, as a direct result of the sovereign debt crisis. Overall, over 80% of the companies surveyed believe the worst of the crisis is yet to come.


These are the main findings of a new study by Roland Berger Strategy Consultants reflecting the managers' views on the sovereign debt crisis and its effects on financing and the real economy. The aim of the study was to learn how, in view of the current sovereign debt crisis, managers are preparing their companies for such possible scenarios as a renewed economic downturn or the exit of individual countries from the euro zone.


Many of the companies are preparing for the worst – about a third have already made contingency arrangements for a possible breakup of the euro zone, or are planning to do so. In this context, two thirds of the respondents are focusing primarily on cost-cutting and efficiency-raising programs to make sure they are ready for any financial or staffing shortages. Consistently implementing the proposed restructuring actions is important to ensure the companies' success.


Despite all the turmoil however, half of the companies in Central and Eastern Europe and almost 60% in Romania consider themselves well equipped for any scenarios. After all, almost 5 years of surviving "blue" times have not come without hard lessons, and survivors tend to emerge stronger than before.

 

1. GENERAL OUTLOOK – PROSPECTS AND EXPECTATIONS


Europe expects the economy to stagnate overall in 2012 and grow by a mere 0.6% in 2013. North-Western Europe (NEW) is moderately more optimistic, expecting 0.8% growth. At the other pole, South-Western Europe (SWE) expects GDP to be down by -1.8% in 2012 and still down by -0.6% in 2013. Somewhere in between, CEE expects economic development of -0.2% – only a slight decrease. By comparison, Japanese expectations are much more optimistic, at 1.3% economic growth in 2012.


For 2012, both Romania and Germany are expected to register growth somewhere in the interval 1.0% to 2.0%. A similar level is also forecast for 2013, with Romanian managers however slightly more dispersed towards extreme values (both positive and negative).


Despite the general wave of uncertainty, over 60% of those surveyed in both countries expect growth of more than 10% for their own companies and thus much more than for the two economies as a whole. German managers are once again more confident with almost 75% of them expecting solid growth from their organizations.


Overall, 62% of the companies in Europe perceive the threat of a possible new recession in their country. More optimistically, in NWE just half of companies believe there is a risk of recession, with German managers even more positive. At the other end, SWE companies believe to already be in recession, while over 70% in CEE fear a new possible slowdown. In line with European expectations, 54% of the Romanian managers are also anticipating a renewed decline.


The current situation is expected to worsen in an economic downturn particularly in terms of more restrictive lending and declining intra-European exports. In Romania in particular, the fear of growing unemployment is higher. The most relevant factor in Europe as a whole, i.e. declining demand among private households, is also a key concern in Romania, while declining extra-European exports is of no particular relevance, the only exception being Germany, for whom exports are the main economic growth engine. The sovereign debt crisis is expected to impact companies much less than the economy as a whole, as 61% of those surveyed in Europe see a strong negative impact on the economy, compared to only 34% on their own companies. The situation is similar in Romania, with 68% of managers anticipating negative shock waves on the overall economy, but only 29% on their own companies. On the negative side, 84% of companies worldwide believe that the sovereign debt crisis has yet to reach its peak, which is estimated in late 2012 or early 2013.

 

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