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Wiener Institut für
Internationale
Wirtschaftsvergleiche
The Vienna Institute for
International Economic
Studies
www.wiiw.ac.at
Economic Prospects for CESEE Region and
Key Challenges
Peter Havlik
The Vienna Institute for International Economic Studies
(wiiw)
20 Years of Economic Reform in CESEE
Paneuropean University Bratislava, 8th February 2013
3
External environment and impacts on CESEE
 Euro area in recession (2012-2013) with shallow
recovery (2014-2015) ahead
 CESEE: after a weak recovery 2010-2011 growth has
slowed down anew in 2012
 Recession in some NMS and most of SEE
 ‘Fringes’ (RU, UA, KZ) more resilient than the core
(NMS, SEE), at least so far
wiiw
4
External environment and impacts on CESEE
 World market commodity prices (affect ‘fringes’)
 EU in turmoil (affect mostly ‘core’)
 Austerity economics prevails nearly everywhere
 Weaker growth expected also in the medium-term
 A new growth model ?
 From export-led to domestic demand driven growth ?
wiiw
14
Evolution of GDP growth drivers, 2009 - 2015
no. of countries with positive/negative contributions to GDP growth
Household final consumption
Government final consumption
Gross fixed capital formation
Trade balance
2009
2010
2011
2012
2013
2014
2015
+
5
10
14
11
14
16
16
-
11
6
2
5
2
0
0
+
10
8
9
9
12
13
15
-
6
8
7
7
4
3
1
+
1
6
11
9
14
16
16
-
15
10
5
7
2
0
0
+
16
9
8
11
9
6
6
-
0
7
8
5
7
10
10
Note: A figure in a + row indicates the number of countries that had a positive contribution. A figure in a
- row indicates the number of countries that had a negative or stagnant contribution.
Source: wiiw estimates incorporating national and Eurostat statistics.
wiiw
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Prospects 2013 - 2015
 Growth can rely less on the contribution of the external sector
 Thus, greater dependence on domestic demand needed
 But:
- Consumption and investment demand characterized by
difficult financing conditions and deleveraging processes
- Fiscal policy in most countries excessively restrictive
 Therefore: dampened recovery processes will extend well over
2013 and afterwards
 Slower growth expected also in the medium-run
 Serious implications for labour markets, in parts of the region
even dramatically high unemployment is here to stay
wiiw
17
Prospects 2013 - 2015 (cont’d)
 North-South divide(s) in Europe deepens: country groups in CESEE
(CE-3, Baltics perform better than HU, Sl, HR; rest of SEE and GIPS)
 Most important differences across countries:
- Debt build-up prior to the crisis (mainly of the private sector)
- Longer-term weaknesses of the export sector; exchange rate regime
- Different responses in terms of economic policy (in particular fiscal
policy; wage policy etc.)
 Expected impact of the economic policy reformulation of the eurozone;
different impacts on EU-, Euro-zone, non-members)
 Next EU budget likely curtailed, yet Vienna Initiative 2.0 may partly help
as EBRD, EIB, The World Bank will provide additional funding (EUR 30 bn)
wiiw
18
Medium-term threats and opportunities
 EU muddling through (baseline scenario)
 2012-2013 rather disappointing in terms of growth
 the next forced rebalancing not yet over
- threat #1: recession in euro area deepens in 2013 while
austerity continues (multipliers discussion)
- threat #2: EU (eurozone) implodes, recession returns
 opportunity: austerity relaxed/suspended
 EU policy orientation overhauled, closer integration
wiiw
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GDP growth rates 2012 and forecasts for 2013 - 2015
7
6
2012
2013
2014
2015
5
4
3
2
1
0
-1
-2
LV KZ RU LT EE SK PL AL BG RO UA EA MK BA ME CZ HU HR RS SI
Source: wiiw (February 2013), European Commission (Autumn Report, November 2012) for EA.
wiiw