EURONOMICS:Double Blow For Balkans As Jobs, Remittances Fade

Southeastern Europe's fast-growing economies are heading for a shock as the global economic slowdown pushes jobless rates up for the first time in a generation.

Not only are domestic jobs being lost but millions of migrant workers from the Balkans living in Spain, Italy and the U.K. will find that recessions in their new homes are making it harder to send cash back to relatives in their old ones, further exacerbating the crunch.

Lack of access to capital inflows will punish Eastern European economies, sending both Romania and Bulgaria into recessions next year after they've been growing at 9% and 7% rates so far in 2008, according to new forecasts by BNP Paribas economist Michal Dybula.

"The huge external imbalances built up during the recent upswing will have to be corrected now," he said.

As richer euro-zone economies stall, stripping away export markets as well as a source of the capital that stoked a debt-driven growth spree, a bleak outcome is all but guaranteed for the Balkan region.

Job cuts are being announced at an accelerating clip. In Bulgaria, the Stomana steel plant, the Neochim (3NB.BG) fertilizer maker and battery maker Monbat (5MB.BG) are already announcing layoffs. In Romania, chocolate and car makers, as well as construction and chemical firms, are pushing through job cuts or production pauses because of a lack of demand.

The unemployment rate began jolting upwards in October in both Bulgaria and Romania, as well as in neighboring countries such as Turkey and Croatia. Slovenia will join the list after this month's cuts at a local Renault SA (13190.FR) factory.

In another sign of weakening labor markets, wages are now falling behind inflation in Serbia and Montenegro.

"Contracting foreign sales will reduce corporate investment spending and force companies to cut the labor force," said Dybula.

Unemployment had been in retreat for six years, helped by an exodus of workers to Western Europe. The return of joblessness to the region coincides with that of many of the emigrants.

Data on remittances is fragmentary, but economists furrowing through current-account figures say the trend is now downward. "Romanians working abroad are sending back less and less money," said Nicolaie Alexandru, senior economist at ING in Bucharest.

Money sent home by migrant workers is a key structural support for many emerging economies. They amount to a whopping 36% of gross domestic product in dirt-poor Moldova, and around 12% in Albania.

In Bulgaria, remittances were worth around 5% of GDP, according to the Geneva-based International Organization for Migration. In wealthier Romania, the figure is about the same, amounting to EUR5.3 billion in 2006, up 40% on the year, according to the Organization for Economic Cooperation and Development.

That means sending workers abroad has been a serious export industry, contributing almost as much to current accounts as foreign direct investment.

As capital flows dry up, a drop in remittances will put further strain on economies driven by soaring credit growth financed from abroad.

Romania's current-account deficit will narrow by half next year, an outcome that suggests a huge drop in domestic demand, according to the Institute of International Finance, an umbrella group of private banks that manage most of the world's cross-border capital flows. Bulgaria may have a harder landing because of its larger external deficit.

Unfortunately, the flow of workers heading west mirrored the map of unsustainable credit bubbles, with Spain, Italy, Ireland and the U.K. being the main hosts.

Some 1.5 million Romanians work in Italy and Spain, often in construction, where jobs are disappearing fast. The drove of emigres, many Polish, that went to the U.K. is now reversing, according to Migration Expert, a London-based consulting company that helps arrange visas and work permits.

A few months ago, this was just what governments in Romania and Bulgaria - both countries that have migrant inflows of their own despite low salary levels - had hoped. Both sent delegations to Spain and Italy to lure migrants back, hoping to put a cap on runaway wage inflation at home.

Last week, Bulgaria's labor minister, Emilia Maslarova, unveiled a survey claiming that at least one in five of the estimated 500,000 Bulgarians now living elsewhere in Europe wanted to return, and that fewer locals wanted to leave.

A third of the Romanians in Spain and Italy want to return, according to a survey by the Center for Urban and Regional Sociology, or CURS, a polling agency in Bucharest.

If 20% of Bulgarians returned home, the jobless rate would rise to around 9% from the five-year high of 5.9% reached in October. A new poll found job insecurity outpaces concern about financial markets by a three-to-one ratio.

In Romania, where the government expects the global crisis to cost 29,000 local jobs, the unemployment rate inched up to 4.0% in October. It would jump to double digits if the CURS survey proves prophetic.

Evidence of returning emigrants is anecdotal so far, but official figures didn't catch the outward move either.

There's been a surge in requests for Romanian schools to recognize school credentials obtained by children in Italy and Spain this year. Moreover, Ana Bleahu of the Institute for Quality of Life in Bucharest said many of the emigres were from the countryside, where "most people are unpaid workers for family farms," meaning they aren't captured by the jobless figures but don't have any income either.

Meanwhile, the ranks of jobless Romanians in Spain are set to swell to 130,000 before Christmas from 100,000 now, according to a study by Madrid's Rey Juan Carlos I University that was sponsored by the Spanish government.

And in Italy, more than 40% of Romanians don't have legal work contracts and can expect to be the first to lose their jobs, according to Eugen Terteleac, head of the Association of Romanians in Italy.

But the West won't want trouble on the eastern front. "The good news is that the money needed to bail out some of these Southeastern Europe countries may be small," said Simon Quijano-Evans, a Vienna-based emerging-markets analyst for Cheuvreux. "That means the (European Union), which is about achieving peaceful development, can handle it."

-By Christopher Emsden, Dow Jones Newswires; +39-02-58-21-99-05; chris.emsden@dowjones.com

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