The great fall of global stock markets is flowing over into the Balkans after the US credit rating downgrade. The Dinar is weakening. Emergency meeting scheduled with the Prime Minister. Serbian Prime Minister will today, together with the members of his cabinet, NBS Governor and Fiscal Council representatives, attempt to survive the scale of damage that Serbia is already feeling. The topic of the conversation will be what can happen to our economy during this upswing of the “most difficult financial market crisis since WWII”, as the Chief of the European Central Bank called it.
Ever since last Friday, stock on the Belgrade stock exchange has been dropping by on average 6% a day. The RSD has in just 2 days dropped by over 2%, while the auction of state treasury notes which finance, among other things, the budget deficit, ended by selling merely 2.95% of the state notes. All this despite the fact that the state offered an extremely favorable interest of as much as 14.5%.
- The first effect of the crisis is already seen, mostly by the rate of the RSD which will continue to weaken – considers economist Ivan Nikolic. Occurrences with the rate will further affect import reduction, because installments will grow. The rate of uncollectible loans will grow. The next step might be the mistrust of the people and companies in savings and the withdrawal of deposits. This is the most unfavorable scenario. But this isn’t so dangerous, because foreign currency reserves are substantial and it is possible to stop such a trend. There is no need for any special measures of the government because the measures adopted to overcome the first strike of the crisis are still being upheld. However, another credit arrangement with the IMF would come in handy now, as a guarantee for curtailing the negative crisis effects. The politicians would benefit from this because elections are on the way and further savings are unpopular.
According to his statements, the biggest hit to Serbia would be the potential drop of import into countries with which we have the biggest exchange, Italy and Germany. Neighboring countries are also significant partners, and they are hit just like Serbia is, with the crisis.
CHF RECORD HIGH
The Swiss Franc is at a historic high against the Euro and Dollar. On Tuesday it was worth as much as EUR 1.057. The Serbian currency, on the other hand, is dropping and in the past two days alone, the Euro is growing against the domestic currency by over 2 RSD. The values of other Eastern-European currencies are also dropping against Europe’s. Since August 2, the Ruble dropped against the Euro by almost 7%, the Romanian Lei weakened by 1% and the Forint fell by 2.5%.
- There are two potential channels of impact via the banking sector, where I would particularly emphasize Italy, whose banks are keeping a fifth of the Serbian market share, and which was on Monday salvaged through direct intervention of the European Central Bank by buying its bonds – Nikolic repeats.
Economist Ljubomir Madzar stresses that a country that wishes to protect itself from turmoil and hits from the global market, should turn to economic self-sufficiency “but that would condemn it to economic vegetation and a final downfall”.
- Serbia didn’t fall after 2008 primarily due to the influence of the global economic crisis and our authentic crisis, because our growth isn’t sustainable and was based on short-term development impulses like income from privatizations and inflow from debts, and once they dry out, then of course, come the difficult economic times”, Madzar highlights.
Although the price of crude oil on Tuesday on the New York stock market reached a record low in the past year, the price of oil derivatives in Serbia are continuing to grow daily. Crude oil had today cheapened by as much as 32% against May, of around USD115 to the barrel.
- The real markets are almost immediately reacting to happenings on the large markets, but with ours it definitely isn’t the case. Suppliers are currently selling oil that they paid USD100 and more to the barrel, and when the cheaper one comes along, it can easily happen, like now, that they forget that they bought it at a lower price”, says Nebojsa Atanackovic, president of AD Nafta.
Stocks on world markets fell on Tuesday for the tenth consecutive time, recording 20% losses against May. The shock on the financial markets caused by the US credit rating downgrade over debt increases daily concerns of a new wave of global recession. Europe’s Central Bank intervened by buying out Italian and Spanish debt securities, since the financial officials of the seven top economic forces of the West had asked this. Since the start of the purchase, pressure on this kind of debt securities has been relieved and the leading stock indices recovered.
This however, didn’t last. In the afternoon hours the market picture changed suddenly, and the value of chief share indices dropped all over Europe, following the negative trend on Asian and US effective markets. Investor concerns increased after the bad news from the rising global economy China. Beijing recorded inflation higher than planned, which with the slow-down of US economic growth additionally complicates the situation on the markets. The value of the global share index, MSCI fell by 1.5%. Shares of markets on the rise are recording a drop of 3.3%.
ATHENS– Stock on the Athens market dropped to the lowest level in the past 14 years, while the primary stock market index dropped below the psychological limit of 1,000 points. Such a drop is greater than on other financial markets in Europe. Over-indebted Greece became the first country of the EU to ask for international financial assistance last year, only to be later joined by Portugal and Ireland.
Gold reached a new, record high price. The fine ounce of gold, weighing just over 30gr, was sold on Tuesday by USD 1.750 on the market where investors are looking for a safe investment haven.
According to the latest analysis of the World Gold Council, Serbia is in 59th place by gold supplies deposited in Central Bank with 13.1 tons, which makes up 4.4% of the overall state reserves, announced on Tuesday Ilirika Gold Investment Fund. From countries in the region, Slovenia is also present, in 79th place, with 3.2 tons and 14% of the total state reserves with Albania in 92nd place with 1.6t. Croatia, Montenegro, Bosnia and Herzegovina and Macedonia are not mentioned in this report.
The basic reason for gold reserves is to preserve the value of property in times of unstable economic turmoil, but to also make some extra money.