CESEE Main Economic IssuesBelarus Bulgaria Romania Croatia Serbia Ukraine Kosovo Moldova Albania...
Transcript of CESEE Main Economic IssuesBelarus Bulgaria Romania Croatia Serbia Ukraine Kosovo Moldova Albania...
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CESEE Main Economic Issues
Commerzbank CEEMEA DayCoworth Park, May 20, 2016
Bas B. Bakker Senior Regional Resident Representative
for Central and Eastern Europe
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Global growth has decelerated since 2010
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2000 2002 2004 2006 2008 2010 2012 2014 2016
Real GDP growth(percent)
Emerging and developing countries
Advanced countries
World
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Why has global growth disappointed?
Advanced countries remain mired in low growth Large emerging market countries have slowed
down Argentina, Brazil, Russia and Venezuela in
recession Growth in China has slowed down
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CESEE more complicated: CIS in recession; non CIS doing much better
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CEE EU
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CIS
3-year rolling average PPP weighted real GDP growth(percent)
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CESEE is more complicated
Much of CIS was in recession in 2015 Russia was hit by fall in oil prices and
sanctions Ukraine and Belarus also in recession
But outside CIS, region is doing much better Particularly EU new member states
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In many EU New Member States unemployment is coming down fast and is now near pre-crisis lows
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Unemployement rates(percent)
Czech Rep.Hungary
Poland
Bulgaria
Slovakia
Estonia
Latvia
Lithuania
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Similar dichotomy in inflation: relatively high in CIS, low elsewhere
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3-year rolling average CPI inflation(percent)
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Why the difference between non-CIS CESEE and large EMCs?
Commodity price declines hurt some large EMCs; most of non-CIS CESEE commodity importer
Different stages of credit cycle Post 2009, growth in CESEE was held back by
overhang of credit boom and deleveraging By contrast, large EMCs saw acceleration of credit Currently, large EMCs may be at the end of credit
boom In CESEE impact of deleveraging is diminishing
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Large EMCs had credit boom
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China
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In non-CIS CESEE there has been deleveraging
10Latv
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Slov
enia
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Change in claims on non-financial private sector to GDP ratio, 2010-2014(percentage points)
It had a credit boom pre-2009; and has been working off the overhang
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Growth in CESEE is projected to accelerate this year
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Real GDP growth(WEO Spring 2016 , percent y/y)
2015 2016
Note: Striped fill denotes CESEE country under IMF programs.
below - 5 percent-5 - 00 - 11 - 22 - 3
above 3 percent
below - 5 percent-5 - 00 - 11 - 22 - 3
above 3 percent
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Although there are many downside risks
Disappointing Euro Area growth Geopolitical tensions Refugee crisis Hard landing in China Slowing growth in large emerging markets
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Brexit
Direct trade and financial links with CESEE are not large for most countries
Germany is an important trading partner for theCESEE, with large direct links to the UK
Risk that Brexit could trigger renewed market turmoil, and long period of uncertainty.
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Renewed financial market turmoil…
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5-year CDS spreads(basis points)
Developing Asia
CESEE
Latin America
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.. Interacting with rising political instability…
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EIU Political Stability Risk Score(0 = no risk)
May 2016 March 2015
0 - 1010 - 2020 - 3030 - 4040 - 5050 - 60
above 60
0 - 1010 - 2020 - 3030 - 4040 - 5050 - 60
above 60
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Political instability in number of countries
Kosovo Macedonia Moldova Ukraine
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Adjustment fatigue and even reversal of fiscal policy stance
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Estimates of 2016 Fiscal Deficit by WEO vintage(percent of GDP)
Estimates of 2016 deficit as in:
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Even without downside materializing growth is too low in many countries
Catch-up has stalled, and in some countries even reversed
Countries need to get back to rapid convergence
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Catch-up has continued post-2008 in Central Europe and Baltics, but stalled in many SEE and CIS countries.
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Change in income per capita gap to Germany(percentage points, PPP-adjusted)
2003-08 2010-2015
below -3pp.-3.0 - 0.00.0 - 3.03.0 - 6.06.0 - 9.0
above 9pp.
below -3pp.-3.0 - 0.00.0 - 3.03.0 - 6.06.0 - 9.0
above 9pp.
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Demographics and much reduced productivity growth may make mediun-term growth lower than expected
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SEE non-EU CIS CE5 SEE EU Baltics
TFP contribution to GDP growth (pp, annual average)
Note: SEE non-EU excludes Serbia and Montenegro.
2010-2014
2000-2004
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How can we boost convergence going forward?
Question we addressed in depth in our just-published Spring 2016 issue of “CESEE Regional Economic Issues.”
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Further raising employment rates is needed, as is higher labor productivity
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ALB
BLR
BIH
BGR
HRV
CZEEST
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LVA LTU
MKD,
MDA
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SRB
SVK
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UKR
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Labor productivity(PPP adjusted USD, thousands)Note: bubble size reflects GDP per capita (PPP)
Labor utilization and productivity
NLDDEU
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To raise labor productivity more investment needed
The capital stock per capita in a typical CESEE economy only about a third of that in advanced Europe.
Investment gaps are particularly wide in infrastructure
In most of the region, domestic savings rates are too low
Policies should therefore focus on institutional reforms that reduce inefficiencies and increase returns on private investment and savings.
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Boosting Total Factor Productivity (TFP) is important as well
CESEE countries may have to address structural and institutional obstacles that prevent efficient use of available technologies, or lead to inefficient allocation of resources.
Our recent CESEE report suggests the largest efficiency gains are likely to come from Improving the quality of institutions (protection of
property rights, legal systems, and healthcare) Increasing the affordability of financial services
(especially for small but productive firms) Improving government efficiency.
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Thank you