Money Buzz! Europa

Category: Economy

  • 22 EU regions had still not grown back from the 2008 recession

    As we face the prospect of a recession once again, it is instructive to look back at how quickly countries in Europe recovered from the last recession and what proportion of households were left behind, Money Buzz! learned from a study published by the Federation of International Employers (FedEE).

    If we take GDP per inhabitant (at equivalent purchasing power parities) as our measure of economic well-being, then the lowest point in the last recession came in 2008. How long did it take for the European Union’s (EU’s) 270 regions to recover from that point?

    The most curious fact was that six regions in Poland and the French Island of Corsica never experienced the recession at all. Their economies just kept on growing. It is also important to note that, by 2011, half of the EU’s regions had recovered their position to be at, or above, their 2008 level. But, for the rest, recovery was slow – and even by 2017 a total of 22 EU regions had still not grown back to their 2008 position. 12 of these most ailing regions were in Greece, four in Italy and three in Spain.

    By 2017 not even every thriving region had a universal picture of improving affluence. In many regions many people were left behind. One way to look at this is to measure the level of work intensity amongst adults in households – excluding those occupants in full-time education or retired. Low intensity means that less than 20% of available hours were worked in the household over the previous 12 months.

    Looked at in this way, the social and economic landscape of the European Union looks very different. Low work intensity for the whole of the EU accounted for just over 10% of households. But if we concentrate on cities, then low work intensity was highest in Belgium and Ireland (over 20% and 15% of households respectively). Low work intensity in rural areas was highest in Bulgaria (well over 20%), Spain, Croatia and, once again, the Irish Republic. Finally, if we look at smaller towns and suburbs, low work intensity was highest (again) in the Irish Republic and Greece.

    By sharp contrast, the most industrious households in cities could be found in Slovakia, in rural areas the Czech Republic, France and the Netherlands and in small towns and suburbs across Malta, Lithuania, Poland and Estonia.

  • UK growth and consumption weaken, housing market is worsening

    UK economic activity has remained lacklustre at best in recent months, alongside a weakening in the housing market, consumption and financial conditions, Moody’s Investors Service said in its latest Brexit Monitor.

    “The UK economy contracted in the second quarter of this year, the first decline since 2012,” said Colin Ellis, Moody’s Managing Director – Chief Credit Officer EMEA and co-author of the Brexit Monitor. “In our view, if no Brexit deal is reached between the UK and the European Union, the UK economy could suffer a significant and persistent loss in output.”

    UK manufacturing and construction PMIs have fallen to their lowest levels since 2013 and 2009 respectively. However, retail sales volumes and activity have both stabilized.

    Capital investment and investment intentions have contracted further in 2019, while exports and the trade balance have been volatile.

    The risk of a credit negative no-deal Brexit has increased in recent months. Further delay to the UK’s withdrawal from the EU prolongs uncertainty and does not resolve the final outcome. A no-deal Brexit would have credit negative implications for a number of debt issuers.

  • European banks are safer, but debt is riskier

    The financials of European banks have strengthened over the last five years and their credit profiles have improved, but the debt they issue has become riskier, Money Buzz! learned from the latest Moody’s Report.

    This apparent paradox is due to European Union (EU) regulation governing bank failures, which requires banks to issue more junior forms of debt to protect senior liabilities from losses.

    European banks have become less risky over the past five years. The standalone creditworthiness of large European banks has improved, with the average baseline credit assessment of the largest rated EU banks rising by half a notch over the last five years, now averaging Baa2.

    Over the same period, the risk profile of debt issued by European banks has weakened. The average credit rating of debt issued by the same group of European banks has dropped one notch to Baa1 from A3.

    This is due to new bank regulation

    The EU bank resolution regime (the Bank Recovery and Resolution Directive or BRRD) establishes a process by which failing banks can be wound down in an orderly way. This in turn requires banks to issue a special layer of debt that is designed to be bailed in at a time of stress. The size of this debt layer for EU banks is determined by the Minimum Requirement for own funds and Eligible Liabilities (MREL) or for the largest global banks, their Total Loss Absorbing Capacity (TLAC).

    By absorbing losses in a resolution it protects senior debt holders, institutional depositors, and ultimately taxpayers from losses.

    Banks are issuing less low-risk senior unsecured debt and more higher risk nonpreferred senior debt. Large banks need to meet their regulatory MREL and TLAC requirement for bail-in-able debt and for most, this requires the issuance of more junior debt, typically from holding companies or in non-preferred senior form. Moody’s views these debt types closer in risk terms to subordinated debt instruments and we consider that the likelihood of government support is low. As a consequence, these debt instruments almost always have a lower rating than senior debt.

  • Private equity fundraising for CEE reaches decade high of €1.8 billion

    Private equity fundraising for Central and Eastern Europe (CEE) hit the highest annual level in a decade in 2018 with €1.8 billion, according to new data from Invest Europe.

    Buyout funds in CEE raised €1.1 billion, while the region’s venture capital funds attracted over €500 million for the second year in a row, reveals Invest Europe’s 2018 Central and Eastern Europe Private Equity Statistics report, released today.

    Private equity investment into companies across CEE reached €2.7 billion in 2018, the second-highest amount ever achieved, following 2017’s record €3.5 billion. The number of companies backed increased by 50% year-on-year to almost 400, also the second-highest level on record. This was driven by a sharp increase in CEE companies supported by venture capital.

    The number of private equity and venture capital-backed exits in CEE reached an all-time high of 128 companies divested in 2018. This represented a total value of over €1 billion for the fifth year running, measured at historical investment cost. Poland accounted for over half of this total exit value with €575 million. 

    “The strong levels of private equity fundraising, investment and exit activity in Central and Eastern Europe in 2018 demonstrate that the region continues to develop as an attractive investment destination,” said Robert Manz, Chair of Invest Europe’s Central and Eastern Europe Task Force. “Global investors see that private equity and venture capital investment is one of the best ways to access the region’s robust markets and high-growth companies.”

    All countries in the CEE region covered by Invest Europe’s report surpassed the European Union’s 2.1% GDP growth rate in 2018, according to data from the International Monetary Fund (IMF). Eight of the countries achieved annual growth above 4%, with Poland, Hungary and Latvia experiencing particularly high growth rates, reaching 5.1%, 4.9% and 4.8% respectively.

    Poland saw CEE’s highest amount of private equity investment with its companies receiving €850 million in total last year. The Czech Republic was close behind with €767 million invested into its companies via private equity and venture capital funds. Hungary had the highest number of companies receiving investment with over 190 backed last year, almost half of the regional total.

    The biotech and healthcare sector took the highest share of CEE’s private equity investment with 32% of the total value in 2018, while consumer goods and services companies received 27% of funding. The region also has strong technology start-up credentials, including Czech cyber-security group Avast which was 2018’s largest tech initial public offering (IPO) on the London Stock Exchange at a valuation of £2.4 billion.

    Meanwhile, Romania’s robotic process automation firm UiPath achieved a $7 billion valuation during a funding round earlier this year, making it one of the world’s most valuable artificial intelligence companies.

    Invest Europe is the non-profit association representing European private equity, venture capital and their global investors. Its research database is the most robust and authoritative in the industry.