CEE on the sharp end of deleveraging, says DTZ

International banking groups with subsidiaries in Central and Eastern Europe (CEE) which have been hit by the financial crisis may spark a sharper-than-expected deleveraging process in CEE in 2009-2010, according to a new CEE Direct Investment Update report released by property services firm DTZ. Additionally, West European governments putting pressure on bailed-out banks to benefit their home market will help deal a further blow to one of the key pillars of emerging Europe's stellar growth rates over recent years folllowing rapid credit growth across all sectors of the economy.

Economic prospects for CEE deteriorated significantly in September-October 2008 as the credit crunch intensified in Western Europe. The turmoil in the financial markets has undermined investor confidence and prompted financial investors to withdraw capital from CEE. While Poland and the Czech Republic have withstood the global credit dislocations because of their relatively low dependence on private foreign capital inflows, many other CEE countries have built up significant foreign liabilities. Hungary, Romania and the Baltic States in particular have been penalised by West European capital outflows, DTZ said.

'In an environment where transactions will require a higher percentage of equity there will be continued downward pressure on pricing and lower transaction volumes compared to Western Europe and the UK,' DTZ said.

DTZ forecast that transactional activity and pricing will be patchy in 2009 as a result of varying degrees of financial pressure on vendors and increasing differentiation between CEE markets.