Transcript Economic Update - World Bank Group

Economic Update
Growth Returns, with Questions
Europe and Central Asia Region
The World Bank
Indermit Gill
Chief Economist
Skopje, March 17, 2011
Main Points

Growth has returned. Growth rates will average
about 4 percent in 2010. But Central and Eastern Europe
(CEE) will grow at 3 percent, Turkey by more than 4
percent, and the former Soviet Union (FSU) will grow at
almost 4.5 percent.

Jobs have not returned as quickly.
Unemployment rates are stubbornly high in CEE and
Turkey, and are still rising in the FSU.

Prospects more coupled with the west. The
durability of the recovery depends on Western Europe,
because emerging European economies may now be
even more integrated with EU-15 than before the crisis.
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DEVELOPMENTS
THE REGION RECOVERS
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Growing again, but gingerly and
(mostly) joblessly

GDP growth was positive in 2010

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
Recovery led by exports, and fuelled by
capital inflows



Prices of manufactured goods, oil, metals and food up
Large official flows, and better terms for private flows
But industrial production and employment
have lagged

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The region grew by about 4 percent
Kyrgyz Rep., Romania, Croatia and Latvia exceptions
Turkey one of the exceptions
ECA’s growth in 2010 improved, but
weakest among emerging economies
Real GDP Growth (%), 2008-2012
2007
2008
2009e
2010f
2011f
Euro Area
2.7
0.3
-4.1
1.3
1.7
Japan
2.3
-1.2
-5.2
2.4
1.6
United States
2.1
0.0
-2.6
2.6
2.3
Emerging Economies
East Asia and Pacific
Europe and Central Asia
11.4
7.2
8.4
4.1
7.1
-5.1
9.0
3.9
8.0
4.3
Latin America and Caribbean
5.5
4.4
-2.2
5.1
3.9
BRICs
9.5
6.3
2.1
7.4
6.3
High Income Countries
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Most economies in the region contracted in
in 2009
GDP Growth (%), preliminary estimates for 2009
6
Most countries in the region grew in 2010
GDP Growth (%), ECA Region estimates for 2010
7
All countries in the region forecast to grow
in 2011
GDP Growth (%), ECA Region estimates for 2011
14
12
10
8
6
4
2
0
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The recovery in merchandise exports has
been as strong as in other regions
Goods Exports, Volume
(% ch y/y, except Q1 2010 which is q/q), saar
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Metal prices close to pre-crisis peak, oil
and food prices back to 2007 prices
Oil, Metals, and Food Prices ( Index, 2000=100)
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Capital inflows up in ECA, because of both
official transfers and private portfolio flows
Capital Flows (% GDP), 2007-2010 (medians)
Europe & Central Asia
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Latin America & East Asia
7/16/2015
FDI Inflows in FYR Macedonia
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Borrowing costs are down, but still twice
the levels before the crisis
Sovereign Bond Interest Rate Spreads, BP over UST (3 mma)
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Industrial production has increased, but not
back to pre-crisis levels in much of ECA
Industrial Production (Index, 2006=100)
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Non-performing loans are up, and higher
than other emerging economies
Bank Non-Performing Loans (% Total Loans)
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Unemployment has stayed high in CEE,
and continues to rise in CIS
Unemployment Rate (%)
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A full array of measures has been used to
address rising unemployment
Discretionary Labor Market Measures
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ECA countries use a variety of assistance
programs even in good times
Social Assistance Programs (% GDP)
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Higher social benefits generally mean
higher fiscal deficits
Relationship Between Increased Social Benefits and
Fiscal Deficits (2008- to 2009)
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In 2010, the median ECA country ran fiscal
deficits of about 5 percent of GDP
Fiscal Balance (% GDP), 2008-2010
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In 2011, the median ECA country will run a
smaller fiscal deficit
Projected Fiscal Balance (% GDP), 2011
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Only a quarter of people in ECA feel their
lives are getting better
People reporting their lives are getting better (%)
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Source: ILO (2010) World of Work.
ANALYSIS
THE NATURE AND
DURABILITY OF GROWTH
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Concerns: Construction and consumption
at home, and growth in Western Europe

Business cycle combining rapid
contraction with slow expansion


Construction and Financial Services
slowest to recover


Rapid growth in much of region before the crisis
Region integrated with Western Europe
to an unprecedented degree

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Excess industrial capacity in Emerging Europe
Integration increased before the crisis, and outside of
Central Asia, increased even more during the crisis
7/16/2015
USA: Recessions and recoveries have
changed since the 1980s
Recovery of the US from recent economic recessions
(Indexed from levels when recession ended)
Personal Consumption
(Real Spending on Services)
Unemployment Rate
Source: Floyd Norris, “Recessions and Recoveries Are Not All the Same,” New York Times, 24 Sept 2010
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Recessions reduce employment,
depressions destroy it
Relationship between GDP Growth (2009) and
Change in Employment Growth (2008 to 2009)
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Nature: Contrasting experiences in Poland,
Russia and Turkey during the crisis
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Together, these economies are about 75
percent of ECA’s GDP of $3.5 trillion.
Manufacturing, Construction, and Financial
Services employment and output were most
volatile during crisis.
Services overall have served as an anchor for
non-farm employment during the recession.
Differences in run-up to crisis show up
afterwards in trajectory of non-farm employment
during recovery.
7/16/2015
Poland: Employment in construction and
industry has been falling during recovery
0 = 2009M4
o Unemployment rate
has risen despite
recovery since April 2009
o Employment in
construction rose rapidly
before crisis, and has
fallen during recovery
o Employment in
industry has not risen
despite sharp recovery in
exports
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Russia: Employment in construction and
industry has not risen during recovery
0 = 2009M2
o Unemployment rate
has not fallen despite
recovery since February
2009
o Employment in
Construction fell since
early 2008, and has not
risen during recovery
o Employment in
Industry fell a bit despite
sharp recovery in Exports
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Turkey: Employment is recovering both in
construction and industry
0 = 2008M12
o Unemployment rate
rose since December
2008, but has come down
since mid-2009
o Employment in
Construction was steady
before, fell moderately
during crisis, and rose
sharply during recovery
o Employment in Industry
has risen with industrial
production and Exports
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Poland: Steady increase in services
employment and output through the crisis
0 = 2009M4
o FIRE is the only
component of services to
decline since April 2009
o Employment in
services rose before
crisis, and has risen
during recovery
o Employment in trade
rose throughout the
period
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Russia: Employment and output in
services rose before crisis, and flat since
0 = 2009M2
o Finance, Insurance
and Real Estate (FIRE)
has fallen since February
2009
o Value added in
services has stabilized
o Trade has recovered
somewhat more
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Turkey: Services keep employment
growing through the crisis
0 = 2008M12
o FIRE employment
increasing before and
after December 2008
o Employment in
Services overall provided
a steadying influence
during crisis
o Trade has made a quick
recovery after the crisis
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Durability: Recovery after a decade of
integration, with Western Europe sluggish
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Industrial production in EU new member
states, EU candidate countries, and Eastern
Partnership economies is more correlated
with EU-15 now than in 2000
Industrial production in Eastern Partnership
countries and Central Asia is more
correlated with Russia now than in 2000
Industrial production in Russia and in the
EU-15 are more correlated now than in 2000
7/16/2015
PROSPECTS
THE BIG UNKNOWN: GROWTH
IN WESTERN EUROPE
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By 2008, ECA was the most exportdependent emerging region
Merchandise Exports & Imports (% GDP, PPP), 1998-2008
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Half of Southeastern Europe’s
exports go to the EU
Exports as a share of total exports to the world (%), 2008
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Balkan growth prospects depend
increasingly on Western Europe
Business Cycle Synchronization
(12-month moving correlation of industrial production with EU15)
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Euro-zone growth went from highest in
2007 to lowest in 2010
Real GDP Growth (%), 2008-2012
2007
2008
2009e
2010f
2011f
Euro Area
2.7
0.3
-4.1
1.3
1.7
Japan
2.3
-1.2
-5.2
2.4
1.6
United States
2.1
0.0
-2.6
2.6
2.3
Emerging Economies
East Asia and Pacific
Europe and Central Asia
11.4
7.2
8.4
4.1
7.1
-5.1
9.0
3.9
8.0
4.3
Latin America and Caribbean
5.5
4.4
-2.2
5.1
3.9
BRICs
9.5
6.3
2.1
7.4
6.3
High Income Countries
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During the crisis, public finances held up
better in ECA than in the EU-15
Growth in Western Europe
dimmed by debt…
ECA
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…and weakening fiscal positions.
EU-15
7/16/2015
Both public and private debt are high in
western Europe
Source: Bruegel & WIIW (forthcoming) Whither Growth in Central and Eastern Europe?
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But the convergence benefits from being in
the EU are enormous: incomes
Real GDP Growth (%) 1970-2007 and 1970 Per Capita GDP
All Countries: R-sq = 0.019
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EU-27 Countries: R-sq= - 0.599
But the convergence benefits from being in
the EU are enormous: consumption
Consumption Growth (%) 1970-2007 and 1970 Per Capita Consumption
All Countries: R-sq = 0.019
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EU-27 Countries: R-sq= - 0.599
Summary

A multi-speed recovery. Regional forecast for
2011 of 4 percent growth masks big differences—from
1.5 percent growth for Romania, to 4 percent for FYR
Macedonia, to 6 percent for Kosovo.

A jobless recovery. With current trends and
policies, the employment losses may take much longer
to recover than output losses.

A tentative recovery. In Central, Eastern and
Southern Europe, it is now impossible to assess
economic prospects without looking at growth in
Western Europe.
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