Monday, March 22, 2010

The crisis in Greece to reinforce the economic crisis affecting Spain and Spanish investment in the Caribbean and Latin America in the trade balance

Η κρίση στην Ελλάδα για να ενισχύσει την οικονομική κρίση που πλήττει την Ισπανία και την ισπανική επενδύσεις στην Καραϊβική και τη Λατινική Αμερική στο εμπορικό ισοζύγιο.
Bloomberg


Deutsche Telekom, Pernod Brace for Deeper Greece, Spain Slump

March 21, 2010, 7:20 PM EDT


By Ragnhild Kjetland and Ladka Bauerova

March 22 (Bloomberg) -- Deutsche Telekom AG, Pernod Ricard SA and Lafarge SA are among companies bracing for shrinking demand as Greece, Spain, Portugal and Ireland tighten their belts to slash budget deficits.
Austerity programs in these countries may deepen slides in revenue in the region for companies already facing a fragile rebound. For now, executives at 67 percent of 18 large European companies surveyed by Bloomberg say they see revenue this year from these countries unchanged or slightly better than in 2009. Still, declines in incomes and spending, already evident late last year, will worsen, some company officials said.
“In the second half, household income in the region did go down, many moved to prepay and they became more price sensitive,” Guido Kerkhoff, a board member at Deutsche Telekom, the biggest shareholder of Greece’s Hellenic Telecommunications Organization SA, said in Bonn on March 18, alluding to south and eastern Europe. “Customers will be more cautious than before.”
From phone calls, wine and clothes to cement and cars, demand for goods and services is set to cool in these countries this year, analysts and economists said. Lafarge, the world’s largest cement maker, sees sales volume of the construction material falling as much as 8 percent in Greece and 15 percent in Spain. Pernod Ricard, the world’s second-largest liquor maker with brands such as Chivas Regal whiskey and Absolut vodka, faces a “difficult” market in Spain, which has among the largest household-debt burdens in the euro area.
Economic Gloom

“The situation is getting tougher,” said Olivier Cavil, a spokesman for Pernod Ricard. Spain is the second-largest export market behind the U.S. for the Paris-based company. Irish demand has “declined dramatically,” hurt by the faltering economy and a severe contraction in consumer confidence, he said.
Efforts by countries to reduce their budget gaps to calm markets and satisfy European Union limits they’ve breached, may tip all or parts of the 16-nation euro-sharing economy into a double-dip recession, economists say.

“Fiscal measures will definitely have strong repercussions on economic growth,” said Luca Mezzomo, head of economic research at Intesa Sanpaolo SpA in Milan. “The effects of the measures will be particularly harsh on consumer spending as they will cut disposable income and increase prices.”
Greece is seeking to raise taxes and slash wages to narrow its budget gap, which at 12.7 percent of gross domestic product was the EU’s biggest in 2009. Ireland, with a budget gap at 11.7 percent, is cutting government workers’ wages and welfare benefits.
‘Fragile Recovery’
Portugal is selling state assets to cut its deficit, currently more than three times the EU limit of 3 percent of GDP. Spain is struggling to recover from the worst recession in six decades. Its economy, reeling from the collapse of a decade- long construction boom, has been contracting since the second quarter of 2008. At 19 percent, Spain has the highest unemployment rate in the euro region.
“Some European countries potentially need a bailout, which is a clear threat to the fragile recovery in our European markets,” said Bernd Scheifele, chief executive officer of HeidelbergCement AG, the world’s third-largest cement maker, according to a company presentation in London last week.
HeidelbergCement rival Lafarge, based in Paris, expects cement sales volume to fall 3 percent to 8 percent in Greece this year with prices holding stable or rising slightly. In Spain, the company said the volume of sales will slide between 10 percent and 15 percent even as prices fall.
Consuming Less
For Paris-based Carrefour SA, Europe’s biggest retailer, like-for-like sales in Spain, which represents 15 percent of revenue, slid 7 percent last year and CEO Lars Olofsson said he didn’t expect any change in the consumer environment this year. The decline in Spain largely stemmed from food deflation that “remains strong” and a drop in consumption, Carrefour said. In Greece, which accounts for 2.9 percent of revenue, like-for-like sales fell 4.5 percent.
U.K. retailer Marks & Spencer Group Plc said “trading conditions continue to be difficult” in Greece. The company has 30 stores in the country, making Greece its second-biggest international franchise after Turkey. Marks & Spencer gets 90 percent of its revenue from the U.K.
Greece remains the immediate concern. Greek Prime Minister George Papandreou on March 18 set a one-week deadline for the EU to craft a financial aid mechanism for Greece, saying he may then turn to the International Monetary Fund.
Domestic Demand
While his government said on March 10 that the economy may shrink more than 0.8 percent this year, Deutsche Bank forecasts the contraction could be “substantially” greater -- 4 percent in 2010, twice last year’s pace.
The larger concern is that Greece’s debt woes may spread. As unease over Greece’s ability to pay its debts spills over into other countries, the risk premium on Spanish and Portuguese bonds has surged along with that on Greek securities. The Spanish government, battling the third-largest budget deficit in the region, plans to raise value-added tax.
“Given the scale of the austerity measures that Spain, Greece, Ireland and some other countries are undertaking, there is little doubt domestic demand will be significantly dampened,” said Silvio Peruzzo, an economist at Royal Bank of Scotland Group Plc in London.
‘Great Opportunity’
Some companies may gain from the current woes in Greece, said Christos Pitelis, director of the Centre for International Business and Management at Cambridge.
“One could take the cynical view, which is that this could be a great opportunity to buy some Greek companies at good prices,” he said.
Deutsche Telekom, which posted a fourth-quarter loss primarily on a writedown in the value of its Greek unit, is offering to raise its stake in the entity.
The Bonn-based company, which owns about 30 percent of Hellenic Telecommunications, paid 3.8 billion euros for the stake that is now valued at about 1.31 billion euros based on Hellenic’s stock price. Deutsche Telekom said it would be interested in raising its stake if the government were to sell more of the company. The Greek government owns 20 percent.
“The Greek government has the option of selling another stake to us,” Deutsche Telekom Chief Executive Officer Rene Obermann said this month. “It’s up to the Greek government but we’re ready to talk. We’ll certainly look at it with interest.”
--With assistance from Chiara Remondini and Armorel Kenna in Milan, Matthew Campbell, Steven Rothwell and Andrew Cleary in London, , Richard Weiss in Frankfurt, Francois de Beaupuy and Laurence Frost in Paris, Andrea Rothman in Toulouse and Ola Kinnander in Stockholm. Editors: Vidya Root, Celeste Perri.
To contact the reporter on this story: Ragnhild Kjetland in Frankfurt rkjetland@bloomberg.net or; Ladka Bauerova in Paris at lbauerova@bloomberg.net.
To contact the editor responsible for this story: Vidya Root at vroot@bloomberg.net; Celeste Perri at cperri@bloomberg.net.
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