OREANDA-NEWS. On February 03, 2009 Allianz held a press briefing in Warsaw about the global economic crisis and its impact on Central and Eastern Europe (CEE), reported the press-centre of Allianz Group.

Michael Heise, Chief Economist of the Allianz Group, and Klaus Junker, Regional CEO of Allianz New Europe, presented the report on development of these countries during the financial crisis as well as the measures that Allianz is planning to take as a reliable player with long-term market strategy, in order to fulfil its obligations to clients.

Over the last years, CEE has experienced impressive growth rates. Between 2004 and 2008, Poland’s real GDP grew by an average of 5.3 percent per year. Russia’s real GDP expanded on average by seven percent, and Latvia’s growth rates even topped the ten percent mark in some years. One of the key drivers behind these high growth rates has been a massive credit expansion: credit growth rates between 20 percent to 40 percent per annum were not the exception, but rather the rule. The boom has come to an end with quite a hard landing this year. Some countries are already in a recession. In the last couple of months, Hungary, Latvia, Ukraine, Belarus and Serbia have had to resort to the IMF for financial support, either in the form of a loan or as a stand-by arrangement.

Medium-term growth perspectives in CEE
In the coming years, GDP growth in CEE will be more moderate. This holds true in particular for those countries with significant domestic state budget imbalances like Latvia or the Ukraine. Additionally, the massive credit expansion seen in recent years in many countries in CEE was to a considerable extent powered by foreign banks.

Austrian banks for example have been very active in South-Eastern Europe, while Scandinavian banks focused mainly on the Baltic countries. As many banks still have to digest the financial crisis in respect to their own balance sheets, it seems fairly unlikely that lending will resume to the pre-crisis levels anytime soon. This dampens the region’s growth perspectives. Instead of growth rates of about six percent as seen from 2004 to 2008, rates of four percent look more realistic. Michael Heise, Chief Economist of Allianz SE, summed up: "All in all, the growth will continue, albeit at a slower pace. But as the budget imbalances unwind in 2009, some countries could be in for an extremely bumpy ride".

The financial crisis of 2008 is an event that will change the course of development for many years. The world economy is at crossroads. Now is the time to change policy for a better balanced global economy. The herd behavior of market participants has to be tackled head on. What is needed is a new approach to risk management, eliminating the pro-cyclicality embedded in the current regulatory and governance framework. Short-termism has to be curtailed and a comprehensive and effective market regime must be put in place which favors long-term investors. The financial crisis will spell the end of the era of business models built on short-term leverage and financial engineering. After years of stellar growth, the financial industry now faces the task of bringing its size back in line with economic fundamentals. First and foremost, the banking sector faces a historic consolidation process. At the end of the day, the crisis will restore some basic principles of prudence in conducting financial business.

Allianz in New Europe
Despite the ongoing financial crisis, Allianz continues to expand its leading position in New Europe , with the expectation that the region will continue to grow in the future. The main reason for this positive expectation is that customers value Allianz as a reliable long-term partner which delivers the relevant financial solutions, especially in times of turmoil.

With the financial crisis, the over-ageing issue continues to sweep the New Europe countries. The trend towards an aging population is a Europe-wide issue that will continue to influence public policy as well as the financial industry. The demographic challenge calls for reforms and new solutions regarding retirement provisions. Pension reforms, individual client needs as well as the growing wealth potential in New Europe will continue to drive market growth in the medium to long term. In consequence of the ongoing pension reforms in several countries in New Europe, Allianz will continue to play an active role in the asset management business in the region.

As state health systems have failed to deal with the effects of over-aging for the insurance industry, this demographic development offers opportunities for new products and innovations for old-age provisions as well as the development of a wide range of medical insurance products and services. Comprehensive reforms are called for in this segment to prevent future health crises.

"In order to maintain their standards in old age, people will have to plan their retirement carefully. With Allianz’s international expertise and its local knowledge as well as its product platform, we are in a position to tailor solutions from the whole range of life insurance, pension funds to asset management to the needs of our customers", commented Klaus Junker, regional CEO of Allianz New Europe.