Expected Q4 2009 Financial Performance
A Bright Outlook for EM
The 2008 crisis will look like an inflection point for the great EM story - an
inflection point as their relative progress will accelerate. Why?
Disinflation - even deflation - will reign in the West, meaning very low base rates:
Cyclical slack and large output gaps
"Japan disease": Private & public balance sheet issues force savings / debt repayments
Demographics: Slow or no population growth leads to slack
Globalization: Competitive forces and cheap labor have a lot further to run
Technology: The digital age has just begun; its deflationary power is huge
Governments will counteract these forces with very low rates and some money printing. But to
create real inflation it will require a sustained long period of such; In these years "risk"
capital will flow East & South seeking growth
Low "hard" currency rates will spur and chase - 10+% US$ GDP growth in EM:
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Strong domestic balance sheets and momentum mean EM domestic demand intact
Competitive advantages and technology transfers will spur investment and productivity
Very low hard currency rates are the icing on the cake
The result? Current accounts gradually moving to deficit amidst investment booms
Oil and other commodity prices, plus local macro policy, will be key cyclical determiners, not
Western rates
Lobko
BANK OF GEORGIA
www.bog.ge/ir
January 2010
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