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11.03.2010

CEE foreign investment to recover by 2013


A gradual recovery in foreign direct investment in central and eastern Europe is likely by 2013, according to a new study.

CEE foreign investment to recover by 2013

By Vanessa Houlder

Published: March 10 2010 17:53 | Last updated: March 10 2010 17:53

A gradual recovery in foreign direct investment in central and eastern Europe is likely by 2013, according to a new study.

A five-year boom, in which FDI rose five-fold to $155bn in 2008, was halted by recession and the credit crunch, said PwC, the professional services group. Inflows shrank more than half to $77bn in 2009 as investment in real estate, building materials and car parts tumbled, in spite of rising investment in alternative energy, chemicals and electronic components.

Big disparities in FDI emerged between countries last year. Slovakia saw inflows rise 55 per cent, as a result of a single $2.3bn property investment. Latvia and Lithuania experienced the largest declines of about 70 per cent, as property investment dried up.

PwC estimated that FDI in the region would surpass its 2008 peak by 2013. Inflows into central and eastern Europe “grew remarkably” after the mid-1990s when the Czech Republic, Poland and Hungary became important destinations for foreign investment.

PwC said the sharp rise in relative labour costs in the run-up to 2008 meant the region might have experienced an FDI slowdown, even without a global recession. The recession accentuated the downturn as rising credit risk premia and falling income per capita made the region less attractive to investors.

The economic downturn hit some countries in the region particularly severely in 2009, with Estonia, Latvia and Lithuania seeing double-digit rates of contraction in economic output. Bulgaria and the Czech Republic experienced milder declines of less than 5 per cent of output, while Poland’s economy is thought to have grown in 2009.

Investment by real estate and extractive industries made Russia the region’s biggest recipient of FDI in 2008, having seen the largest increase in inflows since 2003. It experienced a 48 per cent decline in FDI inflows in 2009.

Copyright The Financial Times Limited 2010.