Transcript 14-5_landesman - Bank of Greece

1
The global financial crisis and macroeconomic
policies: the situation in Southeast Europe
Michael A Landesmann
First Bank of Greece Workshop on the
Economies and Eastern European and Mediterranean
Countries
May 14th 2010, Athens
wiiw
2
Topics: The global financial crisis and
macroeconomic policies – Southeast Europe
 Switch of ‘growth model’ in Southeastern Europe?
 New (external and internal) constraints emerging from the crisis
 How to deal with structural imbalances
 Policy issues:
- short-run vs. medium- and long-run
- fiscal, exchange rates, financial market reform, structural policies
- EU and national policy agendas
wiiw
Features of the ‘old’ growth model:
 targeted at integration with the EU area
 was associated with significant internal and external
liberalization (trade, capital transactions, financial market
integration)
 benefits: capital inflows, trade integration, ‘technology’ transfer
 the model worked - ‘convergence process’ – but emergence of
structural imbalances
10
8
6
4
2
0
Source: wiiw Annual Database incorporating national statistics, Eurostat.
Ukraine
Russia
Albania
Bosnia&Herzeg
Montenegro
Serbia
Croatia
Macedonia
Turkey
Bulgaria
Cyprus
Czech Rep.
Estonia
Hungary
Latvia
Lithuania
Malta
Poland
Romania
Slovakia
Slovenia
Greece
Italy
Portugal
Spain
Austria
Belgium
Denmark
Finland
France
Germany
Ireland
Luxembourg
Netherlands
Sweden
UnitedKingdom
0
Ukraine
Russia
Croatia
Macedonia
Turkey
Bulgaria
Cyprus
Czech Rep.
Estonia
Hungary
Latvia
Lithuania
Poland
Romania
Slovakia
Slovenia
Greece
Italy
Portugal
Spain
Austria
Belgium
Denmark
Finland
France
Germany
Ireland
Luxembourg
Netherlands
Sweden
UnitedKingd
EU-15
EU-27
8
6
EU-15
EU-27
4
Growth – GDP at constant prices
Average annual growth rates, 1995-2002 and 2002-2008, in %
10
1995-2002
4
2
2002-2008
wiiw
The crisis
7
Exports total
in EUR, Jänner 2008 = 100
BG
RO
HR
MK
AL
Jan-09
May-09
BA
ME
RS
160
150
140
130
120
110
100
90
80
70
60
50
40
30
Jan-08
May-08
Sep-08
Source: wiiw Database incorporating national statistics, Eurostat.
Sep-09
Jan-10
May-10
wiiw
9
GDP
real change against preceding year in %
BG
RO
HR
MK
AL
RS
15
10
5
0
-5
-10
2008-1Q
2008-2Q
2008-3Q
2008-4Q
2009-1Q
Source: wiiw Database incorporating national statistics, Eurostat.
2009-2Q
2009-3Q
2009-4Q
wiiw
10
Gross industrial production,
January 2008 = 100
BG
RO
HR
MK
ME
RS
160
140
120
100
80
60
40
Jan-08
May-08
Sep-08
Jan-09
May-09
Source: wiiw Database incorporating national statistics, Eurostat.
Sep-09
Jan-10
May-10
wiiw
11
Gross industrial production,
January 2008 = 100
CZ
HU
PL
SK
SI
120
110
100
90
80
70
Jan-08
May-08
Sep-08
Jan-09
May-09
Source: wiiw Database incorporating national statistics, Eurostat.
Sep-09
Jan-10
May-10
wiiw
Adjustment of the ‘growth model’:
1. The legacy of structural imbalances
2. New constraints following the crisis
RO
Source: Eurostat, wiiw calculations.
HR
SK
MK
RS
1997
1999
2001
2003
2005
2007
2009
BG
PL
1997
1999
2001
2003
2005
2007
2009
10
HU
1997
1999
2001
2003
2005
2007
2009
20
CZ
1997
1999
2001
2003
2005
2007
2009
10
1997
1999
2001
2003
2005
2007
2009
1997
1999
2001
2003
2005
2007
2009
14
Trade balances of goods and services, 1996-2009
in % of GDP
20
SI
0
-10
-20
-30
AL
0
-10
-20
-30
wiiw
Trade balance of goods and services (BOP)
in % of GDP
6
0
-6
-12
-18
-24
6
0
-6
-12
-18
-24
6
0
-6
-12
-18
-24
NMS-5
Baltics
SEE
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
NMS-5: CZ, HU, PL, SK, SI. Baltics: EE, LV, LT. SEE: BG, RO, HR, MK, BA (from 1998), RS (from 1999), ME (from 2001).
Source: wiiw Annual Database incorporating national statistics, Eurostat.
16
Trade balances of goods and services and income
balances, 1996-2009 in % of GDP
Trade balance in % of GDP
Income in % of GDP
Transfers in % of GDP
Current account in % of GDP
30
20
CZ
10
HU
PL
SK
SI
0
-10
-20
-30
30
20
BG
RO
HR
MK
RS
AL
10
0
-10
-20
Source: Eurostat, wiiw calculations.
1997
1999
2001
2003
2005
2007
2009
1997
1999
2001
2003
2005
2007
2009
1997
1999
2001
2003
2005
2007
2009
1997
1999
2001
2003
2005
2007
2009
1997
1999
2001
2003
2005
2007
2009
1997
1999
2001
2003
2005
2007
2009
-30
wiiw
17
Industrial production
cumulative change, 1995-1990, 2000-1990, 2008-1990
1995-1990
2000-1990
2008-1990
200
150
100
50
0
-50
-100
CZ
HU
PL
SK
SI
EE
LV
LT
AL
BG
HR
MK
ME
RO
RS
NMS-8
150
100
50
0
-50
-100
Note: ME; RS data for 1995-1990 refer to CS.
Source: wiiw Annual Database incorporating national statistics, Eurostat
wiiw
18
Industrial production
cumulative change, 1995-1990, 2000-1990, 2008-1990
150
100
50
0
-50
-100
AL
BG
HR
MK
ME
Note: ME; RS data for 1995-1990 refer to CS.
Source: wiiw Annual Database incorporating national statistics, Eurostat
RO
RS
NMS-8
wiiw
Exports of goods and services (BOP)
in % of GDP
90
2004
2005
2006
2007
2008
80
70
60
50
40
30
20
10
0
NMS-4
BG
RO
HR
MK
Source: wiiw Annual Database incorporating national statistics.
AL
BH
ME
RS
20
Low-skill industries,
as % of total manufacturing exports to the EU-25
2005
100
2006
2007
2008
90
80
70
60
50
40
30
20
10
0
AL
Source: Comext.
BA
BG
HR
MK
ME
RO
RS
NMS8
wiiw
21
Technology-driven industries,
as % of total manufacturing exports to the EU-25
30
2005
2006
2007
2008
20
10
0
AL
Source: Comext.
BA
BG
HR
MK
ME
RO
RS
NMS8
wiiw
Current account
in % of GDP
6
0
-6
-12
-18
NMS-5
6
0
-6
-12
-18
6
Baltics
0
-6
-12
-18
SEE
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
NMS-5: CZ, HU, PL, SK, SI. Baltics: EE, LV, LT. SEE: BG, RO, HR, MK, BA (from 1998), RS (from 1999), ME (from 2001).
Source: wiiw Annual Database incorporating national statistics, Eurostat.
Savings and investment in % of GDP
public saving
private saving
public investment
private investment
30
20
10
NMS-5
0
-10
30
Baltics
20
10
0
-10
30
20
10
0
-10
SEE
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
NMS-5: CZ,HU,PL,SK,SI (from 2000-2007). SEE: BG (2000-2006) and RO (from 2004-2007).
Source: wiiw Annual Database incorporating national statistics, Eurostat.
Summary on structural imbalances:
 Severe weaknesses of tradeable sector;
 Strongly deteriorating private sector savings-investment
imbalances;
 Adds up to unsustainable current account imbalances;
 Role of exchange rate regimes;
 Problematic allocation of FDI across tradable and nontradable sectors (not shown);
Constraints following the crisis:
External factors:
 higher risk assessment of the region;
 more difficult internal and external financing;
 reduced growth expectations for most important export
markets;
 tougher to join the eurozone (new OCA debate)
Constraints following the crisis:
Internal factors:
 ‘deleveraging’ of private sector, increased propensity to
save;
 more limited room to manoeuvre for fiscal policy;
 weaker and more cautious banking sector;
 tightened financial market regulation (internal and external)
30
Summary of the argument on ‘redirecting
the growth model’:
1. Adjusting to new external constraints and internal behavioural
responses following the crisis:
- External: lower export market growth, more difficult financing conditions,
tougher effective EMU membership conditions; financial market regulation
- Internal: weaker financial sector, deleveraging – higher domestic saving
rates, less space for fiscal policy but more pressure on streamlining
2. Dealing with sustained structural imbalances:
- Differentiation across country groups (e.g. fix- and flex-exchr. economies)
3. Policy challenges:
- For the short run and the medium and longer run
- At national and at EU levels
wiiw
31
Redirecting ‘the integration model of growth’
 The policy choices:
 Fixed vs. flexible rates
 Fiscal consolidation vs. fiscal stimuli
 Free flow vs. financial market regulation
 Structural policy issues
wiiw
32
Exchange rates
 Flexible exchange rates have supported sustainable current
account deficits
 Countries with flexible exchange rate regimes may have had a less
costly adjustment to the crisis
 Fixed exchange rates tend to mandate pro-cyclical fiscal policies
during the crisis and in the medium run
 EMU membership may not protect against real exchange rate
misalignments
wiiw
33
Exchange rate and current account
Nominal exchange rate, average (NCU/EUR)
Current account in % of GDP
Czech Republic
Bulgaria
40
10
5
0
-5
-10
-15
-20
-25
-30
30
20
10
0
-10
1995
1997
1999
2001
2003
2005
2007
2009
1995
1997
1999
Croatia
2001
2003
2005
2007
2009
2005
2007
2009
Poland
10
6
5
4
2
0
0
-2
-5
-4
-10
-6
-15
-8
1995
1997
1999
Source: Eurostat.
2001
2003
2005
2007
2009
1995
1997
1999
2001
2003
wiiw
Real appreciation*, 2008-2009
EUR per NCU, PPI deflated, January 2008=100
AL
115
RO
RS
110
110
105
105
100
100
95
95
90
90
Jan- Apr08
08
Jul08
Oct- Jan- Apr08
09
09
Jul09
BA
115
Oct- Jan- Apr09
10
10
*Values over 100 indicate appreciation relative to January 2008.
Source: wiiw Database incorporating national statistics.
Jan- Apr08
08
Jul08
BG
ME
Oct- Jan- Apr08
09
09
Jul09
HR
Oct- Jan- Apr09
10
10
Exchange rates*
Flexible exchange rate: drastic real depreciation after
September 2008
2008-2009, EUR NCU, Jan. 2008 = 100
Serbia
nominal exchange rate
real exchange rate, PPI-deflated
115
110
105
100
95
90
85
80
Jan- Apr08
08
Jul08
*Values over 100 indicate appreciation over January 2008.
Source: wiiw Database, Eurostat.
Oct08
Jan- Apr09
09
Jul09
Oct09
Exchange rates*
De-facto fixed exchange rate:
modest real depreciation after September 2008
2008-2009, EUR NCU, Jan. 2008 = 100
Albania
Croatia
nominal exchange rate
real exchange rate, PPI-deflated
Macedonia
nominal exchange rate
real exchange rate, PPI-deflated
115
115
110
110
110
105
105
100
100
95
95
90
90
85
85
85
80
80
80
105
100
95
90
75
75
Jan- Apr08
08
Jul08
Oct08
Jan- Apr09
09
Jul09
Oct09
75
Jan- Apr08
08
Jul08
Oct08
*Values over 100 indicate appreciation over January 2008.
Source: wiiw Database, Eurostat.
nominal exchange rate
real exchange rate, PPI-deflated
115
Jan- Apr09
09
Jul09
Oct09
Jan- Apr08
08
Jul08
Oct08
Jan- Apr09
09
Jul09
Oct09
Exchange rates*
Currency board or euro as legal tender:
minor real depreciation after September 2008
2008-2009, EUR NCU, Jan. 2008 = 100
Bosnia and Herzegovina
Montenegro
nominal exchange rate
real exchange rate, CPI-deflated
115
110
110
105
105
100
100
95
95
90
90
85
85
80
80
75
real exchange rate, PPI-deflated
115
75
Jan- Apr08
08
Jul08
Oct08
Jan- Apr09
09
Jul09
Oct09
Values over 100 indicate appreciation over January 2008.
Source: wiiw Database, Eurostat.
Jan- Apr08
08
Jul08
Oct08
Jan- Apr09
09
Jul09
Oct09
40
(Private and public) Debt and Fiscal Policy
 In catching-up economies, in financially integrated areas, the
(nominal) interest rate on public debt is below the (nominal)
growth rate which implies that the sustainability of public debt is
assured except if primary deficits are permanently higher than
those that stabilize public debt to GDP ratios
 In the current crisis, it does not seem that in most, not necessarily
all countries, structural primary deficit has changed permanently
so that fiscal balances are not sustainable
 Finally, some of the hikes in fiscal deficits are the consequence of
the deleveraging of private debts and thus fiscal consolidation is
not the first best policy in those cases
wiiw
41
Gross external debt and public debt
% of GDP, 2004-2009
Gross external debt
2004
2005
2006
2007
2008
2009
120
100
80
60
40
20
0
BG
120
RO
HR
MK
AL
HR
MK
AL
BA
ME
RS
Public debt
100
80
60
40
20
0
BG
RO
Source: wiiw Annual Database incorporating national statistics, Eurostat
BA
ME
RS
wiiw
42
Debt in % of GDP
Gross external debt
Public debt
Bulgaria
180
160
140
120
100
80
60
40
20
0
Private debt
Romania
80
70
60
50
40
30
20
10
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Slovenia
160
140
120
100
80
60
40
20
0
Croatia
140
120
100
80
60
40
20
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Source: Eurostat.
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
wiiw
Debt in % of GDP
Gross external debt
Public debt, EU-def.
Private debt (loans)
150
100
NMS-5
50
0
150
100
SEE
50
0
2000
2001
2002
2003
2004
2005
NMS-5: CZ, HU, PL, SK, SI. Baltics: EE, LV, LT. SEE: BG, RO, HR.
Source: wiiw Annual Database incorporating national statistics, Eurostat.
2006
2007
2008
2009
45
Real leading NB/ECB interest rates,
2008-2010 CPI-deflated, in % p.a.
SK
8
-10
Note: For Estonia: 1-month interbank lending rate (Talibor); for Lithuania: 1-month interbank lending rate (Vilibor).
Source: Eurostat.
Jan-10
-10
LT
Oct-09
-8
Jul-09
-8
Apr-09
-6
Jan-09
-6
Jan-10
-4
Oct-09
-4
Jul-09
-2
Apr-09
-2
Jan-09
0
Oct-08
0
Jul-08
2
Apr-08
2
Jan-08
4
LV
Fixed ER
6
4
EE
Oct-08
Flexible ER
BG
Jul-08
6
RO
Jan-08
8
PL
Apr-08
HU
wiiw
49
Policy recommendations for the improvement or the
redirection of the integration model of growth:
National agenda
 Exchange rate flexibility wherever that is feasible (countries that
already use the euro or have committed to currency boards would
have to make sure that the euro is an optimal currency union for
them before joining EMU)
 Countercyclical fiscal policy with sustainable fiscal deficits and
public debt to GDP levels
 Use of taxation or insurance to prevent bubbles in financial
markets (sand in the wheels taxes on particular types of
investments)
 Structural policy to strengthen tradable sector
wiiw
50
Policy recommendations for the improvement or the redirection of the
integration model of growth:
EU agenda
 Copenhagen and Maastricht criteria should ensure that accession
to the EMU leads to sustainable currency union ex ante
 Enrichment of the Stability and Growth Pact with short-term crisis
management facility (support for anti-cyclical fiscal policy while
keeping track of fiscal sustainability)
 Strengthening financial regulation for systemic risks; facilities for
bank restructuring and for regulation of cross-border activities
 Use of EU Funds to support development of tradable sector
wiiw
51
Policy challenges for the
Short and medium term:
- getting credit going again
- real exchange rate adjustment vital in some countries
- pursue active fiscal policy in countries with room to manoeuvre
- labour market policy
Medium and long term:
- paying much closer attention to external disequilibria
- flexible exchange rate regimes have proven to be more successful
- sustainability of private and public debt development
(cross-border financial market regulation, increased EU monitoring)
- policies to promote the tradable sector (also involving EU transfers)
wiiw