Transcript Serbian Economy and the Preparation for European Union

Development and crisis: the
economies of former communist
countries turned EU members
Károly Attila Soós
Institute of Economics Budapest
[email protected]
Average GDP Growth Rates between 1998-2007
(Data in percent)
Euro Area
Bulgaria
Czech R.
Estonia
Hungary
Lithuania
Latvia
Poland
Romania
Slovakia
Slovenia
0
2
4
6
8
The share of Central and Eastern European countries in the EU
measured in GDP, at purchasing power parities
Non-CEE, 17 countries,
88.5%
Bulgaria
Estonia
Latvia
Non-CEE
Romania
Slovenia
Czech Republic
Hungary
Lithuania
Poland
Slovakia
The share of Central and Eastern European countries in the EU
measured in population
Non-CEE, 17 countries,
79,3%
Bulgaria
Estonia
Latvia
Non-CEE
Romania
Slovenia
Czech Republic
Hungary
Lithuania
Poland
Slovakia
Per capita GDP in purchasing power parities, in 2007
In 2005 US dollars
Bulgaria
Romania
Poland
Latvia
Lithuania
Hungary
Slovakia
Estonia
Czech R.
Slovenia
Spain
Euro Area
France
Greece
Austria
Euro Area
0
10,000
20,000
30,000
40,000
Average annual growth of exports between 1995 and 2006
(In percent, calculated on the basis
of goods and services exports data in constant 2000 US Dollars)
France
Greece
Spain
Austria
Slovenia
Bulgaria
Latvia
Romania
Czech Republic
Lithuania
Poland
Slovak Republic
Estonia
Hungary
0
5
10
15
Breakdown of exports by technological level,
Central and Eastern Europe and „old EU”
Technological
level
High tech
1999
15
2007
14
„Old EU”
(EU-13)
Medium high tech
41
40
Medium low tech
Low tech
Total
High tech
11
33
100
7
13
34
100
11
CEE (EU10)
Medium high tech
36
40
Medium low tech
Low tech
15
42
16
32
2007 to
„old EU”
12
37
14
37
100
11
43
15
31
The share of non-inferior intra-industry trade
in the trade with EU-15 in 1999 and 2007
Bu
lg
ar
i
C
ze a
ch
R
Es .
to
ni
a
H
un
ga
ry
La
t
Li via
th
ua
ni
a
Po
la
nd
R
om
an
Sl ia
ov
ak
ia
Sl
ov
en
ia
Au
st
ria
Fr
an
c
G e
re
ec
e
Sp
ai
n
0
20
40
60
80
(Horizontal + high-quality vertical IIT [in SITC 5 to 8 products])
noninferior99
noninferior07
(IIT is measured with the Grubel - Lloyd index. Horizontal IIT: less than 15%
difference in price/weight; HQ VIIT: export price/weight>import p/w by more than 15%)
And the crisis came
Main
Main
strength
weakness
before the in the
crisis
crisis
Intensive participation in
the international economy
Openness to trade in 2006
(Exports+imports of goods and services in percent of GDP)
Austria
Spain
France
Greece
Romania
Poland
Bulgaria
Latvia
Lithuania
Czech Republic
Hungary
Slovak Republic
Slovenia
Estonia
old EU
new EU
0
50
100
exports+imports in % of GDP
150
Ranking according to FDI/GDP among 158 countries (left panel)
and the share of FDI in GDP (right panel)
(average data 1994-2007)
Estonia
Estonia
Hungary
Hungary
Czech R.
Czech R.
Bulgaria
Bulgaria
Slovakia
Slovakia
Latvia
Latvia
Poland
Poland
Lithuania
Lithuania
Romania
Romania
Slovenia
Slovenia
0
20
40
60
80
100
ranking in FDI inflow/GDP among 158 countries
0
1
2
3
4
FDI inflow in percent of GDP
Foreign ownership share of the banks in 2005, in percent
Slovenia
Latvia
Romania
Poland
Bulgaria
Hungary
Lithuania
Czech R.
Slovakia
Estonia
0
20
40
60
80
100
High share of foreign
ownership of banks
Exposure to the probably most
dangerous kind of protectionism: banks
are under pressure to maintain a certain
level of lending at home, and they control
their total lending by lending less abroad
There is anecdotal evidence on such
practices.
The share of foreign currency loans in 2007,
in % of total loans
Slovenia
Flexible
exchange rates
Czech R.
Slovakia
Poland
Bulgaria
Romania
Lithuania
Hungary
Estonia
Latvia
0
20
40
60
80
Net foreign assets in percent of GDP in 2006
Latvia
Estonia
Slovenia
Lithuania
Hungary
Romania
Slovakia
Poland
Bulgaria
Czech R.
-10
0
10
20
Pulic debt in the 10 new menber states
20 40 60 80
0
0
20 40 60 80
(In 2001-2007, percent of the GDP)
2000
2002
2004
year
2008
2000
2002
2004
year
Bulgaria
2006
2008
Romania
0
0
20 40 60 80
Poland
20 40 60 80
Hungary
2006
2000
2002
2004
year
Estonia
Lithuania
2006
Latvia
2008
2000
2002
2004
year
Czech R.
Slovenia
2006
2008
Slovakia
Current account balance, FDI covered and
non-FDI-covered current account deficits
(Data in percent of GDP, average 1994-2006)
Estonia
Lithuania
Latvia
Romania
Hungary
Slovenia
Slovakia
Poland
Czech R.
Bulgaria
-4
-2
current account
non-fdi
0
2
fdi-covered
4
Severe: Estonia, Latvia, Lithuania,
Romania and Hungary
Estonia, Latvia, Lithuania: rapid economic growth,
asset price bubble
Hungary, Estonia, Lithuania: High level of openness
to trade and FDI, including to FDI in banks
Hungary, Romania: high share of loans in foreign
currency, with flexible exchange rates
Estonia, Latvia, Lithuania: hard but not „bulletproof” (remember Argentina) peg of currency to €.
Estonia, Latvia, Lithuania, Hungary: low level of net
foreign assets
Expected GDP growth in 2009 and 2010
(According to the January 2009 interim
forecast of the European Commission)
Slovakia
Slovakia
Poland
Poland
Romania
Romania
Bulgaria
Bulgaria
Czech R.
Czech R.
Slovenia
Hungary
EU total
Lithuania
Hungary
EU total
EU total
Lithuania
Estonia
Estonia
Latvia
-8
Slovenia
Latvia
-6
-4
-2
EC GDP growth forecast 2009
0
2
4
EC GDP growth forecast 2010
The depreciation of the Hungarian forint
against the Euro and the Swiss franc
date
SFR
EUR
09
01
Fe
b
09
01
Ja
n
08
01
D
ov
N
01
O
01
ec
08
08
ct
08
p
Se
01
01
Au
g
08
100 110 120 130 140 150
(31 July 2009=100)
Household mortgage debt composition
(In Hungarian forint vs. in foreign currencies, data in billion forints)
July 08
January 09
0
1,000
2,000
in HUF
in FC
3,000
Public debt composition
(In Hungarian forints vs. in foreign currencies, data in billion forints)
July 08
January 09
0
5,000
in HUF
10,000
in FC
The region impact
„Because we are being included in
the same pack, it makes me fear
that, in the end, we will need aid.
We fear that. We would like to be
in a different region”
(Mirek Topolanek, Prime Minister of the Czech
Republic, quoted in „Western investors panic over
region's bad news”, The Prague Post, 26 February
2009).
A puzzle: why does the Polish zloty behave
even worse than the HUF?
70
60
9.5
10
65
10.5
HUF/PLN
11
75
11.5
Exchange rates of the Hungarian forint
to the Czech koruna and the Polish zloty
Aug2008
Oct2008
Dec2008
Month
HUF/CZK
Feb2009
HUF/PLN
Apr2009
Do we need the €?
Should an EU member country at a more or less low
level of real convergence and thus with a high
growth potential join the Euro area?
Yes (Spain) but then overheating, asset price
bubble. And a hard peg of the currency to the €
(Estonia, Latvia, Lithuania) leads to similar
consequences.
No (Hungary) but then the floating currency will be
exposed to such fluctuations that are rather
harmful for a highly open economy.
Do we need the €?
Hungary’s extremely difficult situation suggests that
keeping the national currency might be the worse
one of the two bad options.
A part of the troubles caused by keeping the
national currency was the leeway left for the
government to pursue mistaken or outright mad
policies: large public sector deficits and allowing
massive borrowing by housebusinesses in foreign
currencies: not only in €, but mostly in SFR (!) and
to some extent even in Japanese Yen!!!!!
Conclusion
Now, at the edge of the precipice, the Hungarian
government recognises that keeping the national
currency for maintaining the possibility of
irresponsable policies was dangerous, and the
preparation for Euro Area accession has been
announced.
At the same time, the actual economic policy of the
government consists of trying to hold the budget
deficit below 3% of the GDP and also to reduce
wage taxes (supply-side rigidities).
Conclusion
Not all economists agree with this policy but
changing it would require the approval of the IMF
and the European Commission who prevented an
unfolding currency crisis by granting a loan to
Hungary in in last November.
Foreseeing any kind of outcome of any national
policies in the given situation would be hard. Now,
developments mostly depend on events going on
outside of the region