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CEFTA Week 2016 South East Europe Economic Outlook and Trade Integration December 2016 Despite the external context, growth in SEE6 is firming up Growth strengthened from 2.2 percent in 2015 to 2.7 percent in 2016 on the back of domestic demand. Real GDP growth, 2014, 2015 and 2016f, percent Decomposition of real GDP growth, 2016, percent Source: World Bank staff calculations based on data from national statistical offices. Where fiscal consolidation gained momentum, public debt starts to recede SEE6 are committed to fiscal consolidation, placing public debt on a declining path, except in Montenegro. Public and publicly guaranteed debt, 2007,2015,2016, in percent of GDP Fiscal developments and outlook for the SEE6 Source: National statistical offices, Ministries of Finance, World Bank staff projections. Source: National statistical offices, Ministries of Finance, World Bank staff projections. Note: average weighted by GDP POSITIVE NEAR-TERM OUTLOOK Solid growth sustains by 2018, but with downside risks to the recovery Real GDP Growth, percent, 2015-18 * * Risks and opportunities • External o Volatility of international financial markets o Tightening monetary policy by the US Fed o Slower-than-projected growth in major export partners o Continued weakness in Greece o Political tensions in Turkey • Source: Central Banks, National statistical offices, World Bank staff projections. Note: SEE6 is a weighted average. Note: * This designation is without prejudice to positions on status, and is in line with UNSCR 1244 and the ICJ Opinion on the Kosovo declaration of independence Domestic o Elections and political uncertainty o But, new political cycle offers an upside potential Heightened risks underscore the urgency of structural reforms to reinforce the nascent recovery Five areas of reforms are particularly urgent: • Eliminate disincentives and barriers to formal employment • Improve the business climate and governance • Enhance the equity, quality and efficiency of public services and social protection systems, while reducing the state footprint • Deepen global integration • Ensure sustainable use of energy and natural resources and stewardship of the environment FURTHERING REGIONAL TRADE INTEGRATION TO SUPPORT ECONOMIC GROWTH AND HIGHER LIVING STANDARDS IN CEFTA ECONOMIES Why Regional Integration Matters • Integration into regional and global markets has been a fantastic engine for growth and increasing living standards across the world • Countries, particularly small economies like in the Western Balkans, need sustained economic grow first, and for this they need more trade in goods and services • Countries that have achieved high income status have done so through connecting to global markets through trade and investment • Trade and investment integration is an important tool to spur productivity gains through increased competition, greater exposure to frontier technology • Regional integration is stepping stone for Western Balkan to help strengthen the capacity of the governments for EU integration and domestic companies to compete in the EU market Encouraging signs of transformation in recent years • Growing from a low base, exports of the Western Balkans to the EU have quadrupled since 2005 and their share in total EU imports doubled • Countries have been able leverage opportunities of connecting to Global Value Chains, notably in the automotive industry, where Serbia and Macedonia have become important suppliers and producers of vehicles and their components Trade Integration reform agenda • As noted, unwavering commitment to address remaining external vulnerabilities, lower fiscal imbalances and implement structural reforms (including on business environment and SOEs reforms) will be key for CEFTA Parties to sustain progress towards higher living standards. • Furthering regional cooperation and trade integration, including with respect to CEFTA Trade Facilitation and Trade in Services additional Protocols, will support and complement these efforts and help expand business opportunities for companies in the Balkans Thank you! www.worldbank.org/eca/seerer