• York Investment & Finance

Global Markets Overview: Eastern Europe

By Julia Solecka, Analyst at TheYork IFS Global Market Telegraph

Fears of increasing inflation, and the subsequent fixed income sell-off, have echoed across Eastern European stock markets in an anxious dip, while new reports have highlighted fintech and ICT hubs within the region.

The end of February brought losses to global stock markets, with fears of higher inflation manifesting in a sell-off in government bonds [1]. While primarily increasing yields on British, French, German and Italian bonds in Europe[2], the fixed income sell-off spread anxiety across financial markets and reflected on global equities. From the highs of 16th February, the pan-European Stoxx 600 fell 3.45% before rebounding as March began. The worst performing sector continued to be technology, with utilities and healthcare also dragging European markets down[3]. There were no major gains across individual Eastern European indexes despite continued vaccine rollouts and potential recovery in hyper-focus. Stricter lockdown rules were announced in Hungary, requiring all businesses to shut for 2 weeks from 8th March, as 600,000 doses of Sputnik V arrived in the first few days of the month, following 550,000 doses of China’s Sinopharm vaccine earlier in February[4]. Slovakia was the next EU country purchase 2 million doses of the Russian vaccine despite resistance from two of the four parties making up the ruling coalition[5].

Over the past year, as we all shifted our lives online, 87% of fintech businesses saw their revenues increase, with over a third seeing a doubling in comparison to 2020[6]. Lithuania, already flagged as a prime location for the development of fintech start-ups, increased its active companies from 210 to 230[7] despite the ongoing challenges thrown by the pandemic. The fintech-friendly business environment has continued to entice a growing number of companies, including those based in the UK seeking to continue operations in the EU with some identifying Brexit as the ‘trigger event’. Around 24 companies of the 230 listed have links to Britain, although Britain continues to also be identified as a hub[8]. A similarly important sector over the past year, the IT sector, has found its home in Poland among other Central and Eastern European countries as it was named most competitive in the region. While not a top performer in either talent or business climate, Poland’s overall score reported was substantially higher than the next competitor, Estonia[9]. Maintaining economic growth while keeping living costs and salaries lower than its neighbours has allowed Poland to nurture start-ups all over the country, with a large amount of potential still available to fulfil across the region[10].

While some sectors and businesses have thrived, the general effect of Covid-19 on economies across Europe has been less favourable, with higher rates of borrowing, increasing inflation rates, higher unemployment and economic slowdowns across the continent. The unemployment rate in the EU-27 lingered at 7.3% in January of 2021[11], though individual data has shown that unemployment rates reached 7.4%, 8.4% and 9.1% in Estonia, Latvia and Lithuania respectively in the latter half of 2020[12]. This was highlighted among new data as the number of unemployed people in Latvia increased by 28.4% during 2020[13]. Latvia’s record-large budget deficit was also in the spotlight as a result of the pandemic, as Edvard Kusners, a Bank of Latvia Council adviser, claimed: “every fourth euro is borrowed money”[14]. Bulgaria has found itself in a similar situation, feeling a 4.7% increase in gross foreign debt annually[15]. Even though the past year was characterised by similar patterns across the continent, Romania’s economy has outshined its peers with a 5.3% expansion last quarter[16]. This has resulted in Romania, one of the few countries within the European Union to not impose strict lockdown restrictions, escaping an economic recession over the past year.

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References: [1] Global stock markets drop as inflation fears prompt sell-off | Stock markets | The Guardian [2] Global government bonds hit by fresh wave of selling | Financial Times (ft.com) [3] UPDATE 2-European stocks pressured by yields, but mark weekly gains on firm cyclicals (yahoo.com) [4] Hungary: Sputnik V arrives in Budapest amidst escalated restrictions (republicworld.com) [5] Slovakia's ruling coalition in crisis over Sputnik V COVID-19 vaccine | Euronews [6] Steady growth, big names and a focus on AML: Lithuanian Fintech in 2020 | Invest Lithuania [7] Steady growth, big names and a focus on AML: Lithuanian Fintech in 2020 | Invest Lithuania [8] UK fintechs seek ‘cure for Brexit’ in Lithuania (arabnews.com) [9] Poland is home to CEE’s most competitive IT sector (emerging-europe.com) [10] Poland is home to CEE’s most competitive IT sector (emerging-europe.com) [11] Unemployment statistics - Statistics Explained (europa.eu) [12] Army of unemployed people in Latvia up 28.4% in 2020 - Baltic News Network - News from Latvia, Lithuania, Estonia (bnn-news.com) [13] Big increase in unemployment in 2020 / Article / Eng.lsm.lv [14] Bank of Latvia warns budget deficit might soon become excessively large (baltictimes.com) [15] Bulgaria's gross foreign debt rises 4.7% y/y at end-2020 (seenews.com) [16] Romania’s Economy Outshines Rest of EU After Shunning Lockdown - Bloomberg


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