By Petra Spescha

European economists have been nearly unanimous about what Europe’s recovery from the crisis will look like on a chart: L-shaped — a severe slump with a prolonged period of flat or minimal improvements in the economy.

But at the Reuters Central European Investment Summit Ewald Nowotny created a new shape when he tried to clarify a statement he made to an Austrian newspaper earlier this month about the economic turnaround.

“It was not a real L-shape –it was an L which was a bit upward bending,” Nowotny, who is on the European Central Bank’s Governing Council, said.

So it appears Nowotny, an economics professor, takes a less pessimistic view of the recovery than we previously thought. Not quite a rebounding ‘V’ shape or a steady ‘U’-shaped rise but somewhere in-between those shapes and the downbeat ‘L.’

Nowotny said last month there was unlikely to be a ‘W-shaped’ recession if exit strategies are timed well. He talked more about exit strategies, rates and the economic outlook here.

Ewald Nowotny gestures during the Reuters Central European Investment Summit, September 28, 2009. REUTERS/Leonhard Foeger

Reuters Central European Investment Summit, September 28-30, 2009

The former Communist countries of central Europe have been the last to be hit by the global economic crisis, but th e hit they took was among the hardest. Only big neighbour Russia’s deep plunge into recession is rivaling the sharp fall from record economic growth that’s in store this year for the economies between the former Soviet Union and Western Europe.

Global risk aversion and deleveraging exposed the weaknesses that the countries had been able to gloss over during the boom years – which in retrospect appeared to have been, in some countries, a colossal binge bankrolled by cheap foreign credit extended by Western European banks that had to come to an end when funding dried up.

Even the specter of a region-wide meltdown lingered over the countries this winter as investors turned a blind eye on the differences between fundamentally sound countries like Poland, and Ukraine, Hungary or Romania, which could avert the threat of default, social unrest and instability only with aid from the IMF and the European Union.

But since the IMF and the EU moved in and made clear they would let no country fail, a pickup in risk appetite has driven up emerging European assets to the extent that some investors already worry about the next bubble inflating.

Worries remain. Many of the region’s export-geared countries’ recovery will depend on a return of demand for their exports in Western Europe. Unemployment is on the rise. Budget deficits balloon. And the mostly Western-owned banks still face an inevitable rise in bad debt that will continue well into next year and could thwart a fledgling economic pickup.

Key policymakers and corporate leaders will discuss these and related issues at the Reuters Central European Investment Summit on Sept. 28-30 in Vienna and Warsaw. We will be blogging about it here.

Poland’s Prime Minister Donald Tusk gestures as he speaks during a conference at the Warsaw Stock Exchange August 28, 2009. REUTERS/Kacper Pempel

   Russian investment bank Renaissance Capital was a big backer of Moscow’s ambition to become a major emerging-markets financial centre, a bridge between European and Asian capital, a rival to Dubai.

    It not only trumpeted the idea, but was one of the first big local firms to take out offices in a sleek glass skyscraper by the Moscow River, surrounded by foundation pits and towers of naked steel girders that were to become Moscow’s Canary Wharf.

Charles Schwab’s Chief Investment Strategist Liz Ann Sonders believes the rise in oil prices is in part directly related to the improvement in the economy. Sonders says “there’s no reality if the economy is starting to improve to the ten-year staying at 2-percent and oil staying at $32 dollars.” Do you agree? Or, will the rise in prices start raising red flags? Click here to listen to Sonders’ view.

Will the rise in oil prices slow the economic recovery? from Reuters TV on Vimeo.

It’s not just traditional western banks that are hurting — the recession is hitting Islamic finance hard, too.

The industry, which operates according to Islamic law and hence has an in-built conservative investment strategy, is seen as relatively insulated from the financial crisis. But some executives at the Reuters Islamic Banking and Finance Summit are not so sure.

Islamic finance should still be able to combat the crisis better than conventional banks but big problems loom if liquidity remains tight. In fact Sohail Zubairi, head of consultancy Dar Al Sharia, reckons they’re facing up to a crisis scenario that could include forced consolidation and layoffs.

“There is a real threat to the business of Islamic banking,” Zubairi told Reuters reporters at the summit in Dubai. “If the liquidity does not return, we will not be able to continue doing our business.”

Yousif Khalaf, head of Ajman Bank, thinks the situation is so bad that growth and profitability are off the menu for this year.

“What is more important is survival and, to some extent, continuity,” he said. “People want to make sure they survive.”

PHOTO CREDIT: A labourer walks inside Sheikh Zayed mosque in Abu Dhabi April 7, 2009. The mosque, one of the world’s largest, is named after Sheikh Zayed bin Sultan al-Nahayan the founder and first president of the UAE who is also buried there. REUTERS/Ahmed Jadallah

“Well insulated” China, though suffering from sharp drops in its own equities markets, doesn’t have the sense of crisis that exists in the U.S., says Philip Partnow, managing director of UBS Securities Ltd in Beijing. UBS, the first Western bank to assume management control of a domestic mainland brokerage, points out the fact that what’s hitting companies is not subprime-related securities gone bad.

“I think there’s nothing here we feel is toxid,” he told Reuters on Wednesday at the Reuters China Summit in Beijing. He goes on:

“The Chinese capital market has responded quite differently than global capital markets and that is because the Chinese capital markets are still pretty well insulated by the way China controls the RMB and by the other financial controls that China has.

“It is true that both the Shanghai A-share market and the Heng Seng market have fallen quite steeply, but that is more in response to a correction from what many people believe was an over-inflated stock bubble, rather than a direct response from some financial crisis or concern. That’s been then followed on by some concerns that people have about a weakening economic sentiment in the U.S. and Europe and Japan, which are China’s key export markets, and what the knock-in impact will be in China. So there is also a fundamental concern.”

“But there is not a sense of distress or of crisis, or that things that people thought were valuable suddenly vanishing into thin air, along the same lines of what we’ve seen with some of the things that were happening with Subprime and the complex structures that were set up around the subprime, back in the United States. So I think there’s nothing really that we feel that is toxic, out here in China, so we are broadly comfortable with the businesses that we’re in. “

By Lucy Hornby

 Lim Boh Soon, chief executive officer of Kuwait Finance House in Singapore said at the Reuters Wealth Management Summit that he sees the period of downturn in the global economy lasting 18-24 months.

However, he thinks the market sell-off over the past two weeks has thrown up good value and said the Middle Eastern bank will look to raise up to $600 million for three Asia-focused funds next year.  Kuwait Finance House is the Gulf third-largest lender.

What do you make of Lim’s assessment on the global economy? Do you think it is a good idea to start buying into the market?

Click here and hear to listen on Lim’s assessment of the global economy.

A quarter of the gas that heats European homes and powers European industry is piped in thousands of kilometres from the Russian tundra. By 2015, Russia’s share of European gas supplies will rise to at least one third. That powerful lever of influence over Europe’s economy raises the stakes in its confrontation with Russia over its invasion of Georgia.

But Alexander Medvedev, deputy chief executive of Russia’s state gas export monopoly Gazprom, opened the Reuters Russia Investment Summit on Monday with a reminder that even the mighty Gazprom is not invulnerable to Europe and the West, relying as it does on foreign revenue and capital.

  Asked if weakness in the New York real estate market – which has been fairly resilient so far – could signal a bottom for the battered U.S. housing market, the head of the influential National Bureau of Economic Research said : 

 ”No, no no! The New York real estate market is priced in euros and pesos,” Martin Feldstein said,  referring to overseas investors snapping up property in the Big Apple which for them works out as a relative bargain because of the weak dollar.

A better indicator to determine whether the worst is over,  he added, would be house prices starting to rise nationwide.  Feldstein was speaking at the Reuters Investment Outlook Summit in New York.

 To hear what he had to say, please click here