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Wiener Institut für Internationale Wirtschaftsvergleiche
The Vienna Institute forInternational EconomicStudies
www.wiiw.ac.at
Press conference, 12 November 2015
New wiiw forecast for Central, East and Southeast Europe, 2015-2017
Mixed Prospects: Consumption leads fragile recovery in the CESEE core — CIS stumbles
Amat Adarov andMario Holzner
2
2015 2016 2017 2015 2016 2017BG 2.3 2.6 3.0 0.8 0.7 0.7HR 0.7 1.2 1.6 0.4 0.1 0.1CZ 3.9 2.4 2.3 1.6 0.0 -0.1EE 1.9 2.6 2.8 -0.1 0.1 -0.3HU 2.9 2.1 2.0 0.6 0.1 0.0LV 2.4 3.0 3.0 0.3 0.2 0.2LT 1.6 3.0 3.4 -0.4 0.1 0.2
Forecast, % Revisions, pp
NMS-11
Growth forecast revised upwards for most CESEE countries
Real GDP growth forecast and revisions relative to wiiw Spring 2015 Forecast
Source: wiiw forecast
LT 1.6 3.0 3.4 -0.4 0.1 0.2PL 3.5 3.3 3.3 0.0 0.1 0.1RO 3.4 3.7 2.7 0.9 0.6 -0.3SK 3.2 3.0 2.9 0.7 0.3 -0.1SI 2.7 2.2 2.3 1.0 0.4 0.3AL 2.6 3.2 3.6 0.6 1.0 1.2MK 3.4 2.7 3.1 -0.1 -0.2 0.5ME 2.4 2.6 2.8 0.1 0.0 -0.1RS 0.1 0.9 1.4 0.6 -0.1 0.0TR 3.0 3.1 3.1 -0.3 -0.4 -0.4BA 1.8 2.3 2.4 0.2 0.2 0.0XK 4.3 3.5 4.1 0.7 0.6 0.3BY -3.8 0.0 1.4 -1.8 -1.3 -0.6KZ 1.5 2.5 3.5 -0.5 -1.0 -1.0RU -3.7 1.0 1.4 0.2 -0.9 -0.6UA -11.5 0.0 1.8 -6.5 0.0 0.0
CIS+UA
Candidatecountries
Potential candidatecountries
3
2015 2016 2017 2015 2016 2017BG 2.3 2.6 3.0 0.8 0.7 0.7HR 0.7 1.2 1.6 0.4 0.1 0.1CZ 3.9 2.4 2.3 1.6 0.0 -0.1EE 1.9 2.6 2.8 -0.1 0.1 -0.3HU 2.9 2.1 2.0 0.6 0.1 0.0LV 2.4 3.0 3.0 0.3 0.2 0.2LT 1.6 3.0 3.4 -0.4 0.1 0.2
Forecast, % Revisions, pp
NMS-11
While CE & RO continue robust recovery…
Real GDP growth forecast and revisions relative to wiiw Spring 2015 Forecast
LT 1.6 3.0 3.4 -0.4 0.1 0.2PL 3.5 3.3 3.3 0.0 0.1 0.1RO 3.4 3.7 2.7 0.9 0.6 -0.3SK 3.2 3.0 2.9 0.7 0.3 -0.1SI 2.7 2.2 2.3 1.0 0.4 0.3AL 2.6 3.2 3.6 0.6 1.0 1.2MK 3.4 2.7 3.1 -0.1 -0.2 0.5ME 2.4 2.6 2.8 0.1 0.0 -0.1RS 0.1 0.9 1.4 0.6 -0.1 0.0TR 3.0 3.1 3.1 -0.3 -0.4 -0.4BA 1.8 2.3 2.4 0.2 0.2 0.0XK 4.3 3.5 4.1 0.7 0.6 0.3BY -3.8 0.0 1.4 -1.8 -1.3 -0.6KZ 1.5 2.5 3.5 -0.5 -1.0 -1.0RU -3.7 1.0 1.4 0.2 -0.9 -0.6UA -11.5 0.0 1.8 -6.5 0.0 0.0
CIS+UA
Candidatecountries
Potential candidatecountries
Source: wiiw forecast
4
2015 2016 2017 2015 2016 2017BG 2.3 2.6 3.0 0.8 0.7 0.7HR 0.7 1.2 1.6 0.4 0.1 0.1CZ 3.9 2.4 2.3 1.6 0.0 -0.1EE 1.9 2.6 2.8 -0.1 0.1 -0.3HU 2.9 2.1 2.0 0.6 0.1 0.0LV 2.4 3.0 3.0 0.3 0.2 0.2LT 1.6 3.0 3.4 -0.4 0.1 0.2
Forecast, % Revisions, pp
NMS-11
… the CIS and UA slip into recession or decelerate
Real GDP growth forecast and revisions relative to wiiw Spring 2015 Forecast
LT 1.6 3.0 3.4 -0.4 0.1 0.2PL 3.5 3.3 3.3 0.0 0.1 0.1RO 3.4 3.7 2.7 0.9 0.6 -0.3SK 3.2 3.0 2.9 0.7 0.3 -0.1SI 2.7 2.2 2.3 1.0 0.4 0.3AL 2.6 3.2 3.6 0.6 1.0 1.2MK 3.4 2.7 3.1 -0.1 -0.2 0.5ME 2.4 2.6 2.8 0.1 0.0 -0.1RS 0.1 0.9 1.4 0.6 -0.1 0.0TR 3.0 3.1 3.1 -0.3 -0.4 -0.4BA 1.8 2.3 2.4 0.2 0.2 0.0XK 4.3 3.5 4.1 0.7 0.6 0.3BY -3.8 0.0 1.4 -1.8 -1.3 -0.6KZ 1.5 2.5 3.5 -0.5 -1.0 -1.0RU -3.7 1.0 1.4 0.2 -0.9 -0.6UA -11.5 0.0 1.8 -6.5 0.0 0.0
CIS+UA
Candidatecountries
Potential candidatecountries
Source: wiiw forecast
5
2015 2016 2017 2015 2016 2017BG 2.3 2.6 3.0 0.8 0.7 0.7HR 0.7 1.2 1.6 0.4 0.1 0.1CZ 3.9 2.4 2.3 1.6 0.0 -0.1EE 1.9 2.6 2.8 -0.1 0.1 -0.3HU 2.9 2.1 2.0 0.6 0.1 0.0LV 2.4 3.0 3.0 0.3 0.2 0.2LT 1.6 3.0 3.4 -0.4 0.1 0.2
Forecast, % Revisions, pp
NMS-11
Baltics: on track despite negative spillovers from RUSEE: growth dynamics pick up
Real GDP growth forecast and revisions relative to wiiw Spring 2015 Forecast
LT 1.6 3.0 3.4 -0.4 0.1 0.2PL 3.5 3.3 3.3 0.0 0.1 0.1RO 3.4 3.7 2.7 0.9 0.6 -0.3SK 3.2 3.0 2.9 0.7 0.3 -0.1SI 2.7 2.2 2.3 1.0 0.4 0.3AL 2.6 3.2 3.6 0.6 1.0 1.2MK 3.4 2.7 3.1 -0.1 -0.2 0.5ME 2.4 2.6 2.8 0.1 0.0 -0.1RS 0.1 0.9 1.4 0.6 -0.1 0.0TR 3.0 3.1 3.1 -0.3 -0.4 -0.4BA 1.8 2.3 2.4 0.2 0.2 0.0XK 4.3 3.5 4.1 0.7 0.6 0.3BY -3.8 0.0 1.4 -1.8 -1.3 -0.6KZ 1.5 2.5 3.5 -0.5 -1.0 -1.0RU -3.7 1.0 1.4 0.2 -0.9 -0.6UA -11.5 0.0 1.8 -6.5 0.0 0.0
CIS+UA
Candidatecountries
Potential candidatecountries
Source: wiiw forecast
6
7.6
7.8
8
3
4EU euro area GermanyUSA China (rhs)
External conditions:Advanced economies recovering, emerging markets slowing down…
Real GDP growth rates of selected economies, yoy, %
Source: World Bank
6.4
6.6
6.8
7
7.2
7.4
7.6
-2
-1
0
1
2
7
140
160 Energy Food Metals
… commodity prices weakening
World Bank’s commodity price indices; 2010=100
Source: World Bank
40
60
80
100
120
8
CE and Romania SEE
Protracted recovery after double-dip recession
Quarterly real GDP growth, yoy
The Baltics CIS, Ukraine and Turkey
Source: National statistics and Eurostat
9
Household final consumption
Government final consumption
Gross capital formation
Real GDP growth and contributions, 2014-2016
Household consumption main growth engine in most CESEE
-2
0
2
4
6
'14 '15 '16
-8
-6
-4
-2
0
2
4
6
8
10
RS BA ME MK TR AL XK BY RU KZ
Source: wiiw Annual Database and forecast
formation
Net exports of goods and NFS
GDP total (growth in %)
-16-14-12-10-8-6-4-202468
10
UA
NMS-11
'14 '15 '16
-4HR HU SI CZ EE BG SK LV LT PL RO
Candidate and potential candidate countries CIS-3
10
LFS Unemployment rate, selected years 2008-2017
Consumption-led growth associated with receding unemployment…
Note: Registered unemployment for Belarus
forecast
Source: wiiw Annual Database and forecast
unemployment rate above 10% in 2014 unemployment rate below 10% in 2014
11
CZ
EE
LT
PL
RO
XK
46
chan
ge in
hou
seho
ld c
onsu
mpt
ion
2014
-201
5, r
eal %
Household consumption and real wages, 2014-2015
… and rising real wages
Source: wiiw Annual Database and forecast
BG
HR
CZ
HULVSK
SI
AL
ME
BA
BY
KZMK
RS
-20
2ch
ange
in h
ouse
hold
con
sum
ptio
n 20
14-2
015,
rea
l %
-5 0 5 10change in average monthly gross wages 2014-2015, real %
Note: Dropping RU and UA. Bubble size corresponds to unemployment rate in 2015, ranging from the highest (XK=34%) to the lowest (BY=0.5%)
12
CPI inflation, yoy, 2015
bolstered by weak inflation (deflation) in most CESEE…
with the exception of CIS, UA, TR, where inflation spiked…
Source: wiiw Monthly Database
Moderate / high inflation
Deflation Low inflation
13
60
70
80
90
Change in nominal exchange rate (national currency / $), August 2015 yoy, %
…as a result of sharp devaluations (CIS, UA, TR)
Source: wiiw Monthly Database
0
10
20
30
40
50
euro BA BG HR MK AL CZ HU KZ PL RO RU RS TR UA
Floating exchange ratesFixed exchange rates / euro
14
RO
MK
XK
CZHU
PLBA10
20Change in exports vs change in imports in 2014, real % yoy
Weak currencies support exports, yet, rising imports render net exports less significant
Source: wiiw forecast
RO
BG
HR
TR
SISK
RS
LV
LTEE
RU
ME
KZ
AL
UA-20
-10
0Im
port
s, r
eal g
row
th %
-20 -10 0 10 20Exports, real growth %
15
60
80
100
120
140AL
BA
BG
CZSK
TR
UA private debt
public debt
Private and public debt, 2014, % GDP
Private investment lagging, constrained by high debt and NPLs
Source: Annual Database and estimates
0
20
40
60EE
HR
HU
KZ
LT
LVME
MK
PL
RO
RS
RU
SI
16
Allocation of EU funds under 2014-2020 Multiannual Financial Framework,EUR per capita
EU funds expected to alleviate investment needs…
Source: wiiw calculations based on European Commission’s data
17
Fiscal stance in CESEENote: orange dots: 2014, grey dots: average 2009-2013. Lines correspond to the Maastricht criteria.
…while public investment depends on fiscal space
ALHR
HU
AL
HR
HU
ME
RS
SI
SK
UA
6080
Gen
eral
gov
ernm
ent g
ross
deb
t, to
tal,
in %
of G
DP
Source: wiiw Annual Database
ROBA
BG
BYCZ
EE
KZ
LT
LV
ME
MK
PL
RO
RS
RU
SISK
TR
UA
XK
BA
BG
BYCZ
EEKZ
LTLV
ME
MK
PL
RU
SK
TR
XK
020
40G
ener
al g
over
nmen
t gro
ss d
ebt,
tota
l, in
% o
f GD
P
-8 -6 -4 -2 0 2General government balance, % of GDP
18
1020
Cha
nge
in th
e cu
rren
t acc
ount
bal
ance
as
a sh
are
of G
DP
, pp
Household consumption vs current accountNote: each dot represents a CESEE country; orange dots: 2014; grey dots: 2005-2013
Rising consumption risks deteriorating current account…
Source: wiiw Annual Database
BG
CZ EE
HR
HU
LT
LVMK
PL
RORUSI
SK
-10
010
Cha
nge
in th
e cu
rren
t acc
ount
bal
ance
as
a sh
are
of G
DP
, pp
-20 -10 0 10 20Change in household consumption, real %
19
2040
Cha
nge
in a
vera
ge g
ross
wag
es, r
eal (
CP
I bas
ed)
%
Change in real wages vs change in unit labour costs, 2010-2015Note: each dot represents a CESEE country; orange dots: 2015; grey dots: 2010-2014
... and increasing wages may erode competitiveness(unless associated with productivity gains)
Source: wiiw Annual Database
BGHR
CZEE
HU
LALT
PL
RO
SKSI ALMK
MERS
BABY
KZ
RU
UA
AT
-40
-20
0C
hang
e in
ave
rage
gro
ss w
ages
, rea
l (C
PI b
ased
) %
-40 -20 0 20 40Change in unit labour costs, ER adjusted (EUR) %
20
Current account vs gross external debtNote: orange dots: 2014; grey dots: 2009-2013
…of particular concern for countries with external imbalances
HR HU
LV
SI
UA EE
HU
LV
SI
100
150
Gro
ss e
xter
nal d
ebt,
% o
f GD
P
Source: wiiw Annual Database
BG
LTMKAL
BABY
CZ
EE
KZ
ME
PLRO
RS
RU
SK
TR
UA
XK
AL BA
BG
BY CZ
EEHR
KZLT
ME
MKPLRO
RS
RU
SK
TR
UA
XK
050
100
Gro
ss e
xter
nal d
ebt,
% o
f GD
P
-20 -10 0 10Current account, % of GDP
21
GDP per capita at current PPPs (EUR), EU average = 100
…and important in light of stalling income convergence
NMS Candidate and potential candidate countries
Source: wiiw Annual Database, wiiw forecast, Eurostat, European Commission
CIS+UA CESEE subgroups and selected advanced economies
22
Stronger trade links with CESEE do not seem to harm Austrian growth dynamics in the longer run
GDP index, 2000=100
125
130
Germany Netherlands Austria
15
Goods exports to CESEE 2014in % of GDP
Source: Eurostat, wiiw Annual Database
90
95
100
105
110
115
120
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
0
5
10
23
External risks may jeopardise recovery in the CESEE
� Geopolitical tensions: Russia/Ukraine, the Middle East
� Slowdown in China and other emerging markets
� Normalisation of monetary policy in the USA
� Subdued oil prices (asymmetric effects for CIS vs other CESEE)
� Refugee crisis in Europe
� Recession and import-substitution in Russia
� Volkswagen scandal
24
Summary
� Economic outlook of CESEE is improving, forecast revised upwards
� Forecast growth (dropping CIS & UA): +3% in 2015
� Sub-regional growth trends are diverging:
• CE continues robust recovery (2-4% per annum)• CIS face poor prospects unless oil price recovers (RU, BY: -4%)
• CIS face poor prospects unless oil price recovers (RU, BY: -4%)• Baltics despite negative spillovers from RU still on track (1.5-3%)• SEE improving growth trends (RS, HR <1%, others: 2-4%)• UA: deeper recession (-11.5%) might be bottoming out
� Household consumption – key growth driver
� Private investment still lagging, EU funding is important
� External environment is moderately supportive, downside risks persist
Wiener Institut für Internationale Wirtschaftsvergleiche
The Vienna Institute forInternational EconomicStudies
www.wiiw.ac.at
New wiiw forecast for Central, East and Southeast Europe, 2015-2017
Thank you for your attention!
Amat Adarov andMario Holzner
26
Country codes (in alphabetic order)
AL Albania ME Montenegro
BA Bosnia and Herzegovina MK Macedonia
BG Bulgaria PL Poland
BY Belarus RO Romania
CZ Czech Republic RS Serbia
EE Estonia RU Russia
HR Croatia SI Slovenia
HR Croatia SI Slovenia
HU Hungary SK Slovakia
KZ Kazakhstan TR Turkey
LT Lithuania UA Ukraine
LV Latvia XK Kosovo
CE Central Europe
CESEE Central, East and Southeast Europe
CIS Commonwealth of Independent States
NMS New Member States
SEE Southeast Europe