Download Global

South East Europe Regional
Economic Report (SEE RER) No. 2
Poverty Reduction and Economic Management
(PREM)
Europe and Central Asia (ECA) Region
The World Bank
June 5, 2012
Outline
I. SEE6: DEVELOPMENTS, OUTLOOK,
CHALLENGES
I. TOWARD ‘GOLDEN GROWTH’ IN SEE6
I. SEE6: DEVELOPMENTS, OUTLOOK,
CHALLENGES: Global context
• The world still faces several challenges.
•
•
•
higher oil prices,
reduced capital inflows,
high-income country fiscal and banking-sector
consolidation
• Most developing economies have fully recovered
from the crisis.
• But second half of 2011 saw slowdown generating
major uncertainty for global economy going
forward with possible further contagion.
• Early 2012 signals positive, but turmoil in May
• Risk of intensification of the Greek crisis and wider
contagion
Global industrial production and
imports improved in early 2012
percent growth, 3m/3m, saar
16 percent growth, 3m/3m, saar
40
14
30
12
20
World IP
10
10
8
Developing IP
6
0
High Income IP
-10
4
-20
2
-30
0
-2
-40
Industrial Production (3m/3m)
-4
-50
Import Volume (3m/3m)
-6
2011M01
-60
2009M01 2009M06 2009M11 2010M04 2010M09 2011M02 2011M07 2011M12
2011M04
2011M07
2011M10
Source: Datastream and World Bank Prospects Group
2012M01
Source: Datastream and World Bank Prospects Group
But financial uncertainty increased in May
5-yr sovereign credit-default swap rates (basis points), Jan 2010-May 2012
1,800
1,600
Portugal
Ireland
Spain
Italy
Belgium
1,400
1,200
1,000
800
600
400
200
0
Jan-10 Apr-10
Jul-10
Oct-10 Jan-11 Apr-11
Jul-11
Source: Bloomberg and World Bank Prospects Group
Oct-11 Jan-12 Apr-12
RECENT DEVELOPMENTS IN SEE6
• In contrast to many developing countries, SEE6
show a sluggish real output recovery
• Significant external adjustment
• But rise in debt, especially public debt
• Labor market – a significant problem
• Credit market – improving but slowly
• Poverty reduction: sluggish
• Unexploited potential: exports
SEE6 Real Output Recovery (20018 real GDP index=100)
ALB, KOS, MKD well underway
BIH, MNE, SRB lagging. Why?
It’s partly investment…
Except in MKD and KOS
But consumption and exports are
weak as well
Consumption, 2008=100
Exports, 2008=100
SEE6 region has shifted from trade-led to domesticdemand-led growth, but demand remains sluggish…
…as reflected in falling inflation rates,
despite higher energy prices
…with remittances providing an economic
and social cushion
2008
2009
2010
2011
16.0
14.0
12.0
10.0
8.0
6.0
4.0
2.0
0.0
KOS
BiH
ALB
SRB
SEE6
MKD
MNE
Big unexploited potential: exports
40
35
6
30
25
8
8
7
20
15
7
9
SEE6
5
OtherEU
5
Germany
10
10
9
10
5
0
3
Other
5
3
4
3
3
MK
BiH
SRB
7
3
4
SEE6
4
2
3
3
7
4
1
MNE
ALB
Italy
2
2
2
KOS
But total public and private external debt
getting too high
2008
2009
2010
2011
2012
120.0
100.0
80.0
60.0
40.0
20.0
0.0
MNE
SRB
SEE6
MKD
BiH
ALB
KOS
…especially public debt (except in KOS)
(% of GDP)
2008
2009
2010
2011
70
60
50
40
30
20
10
0
MNE
ALB
SRB
BIH
MKD
KOS
A (temporary?) external relief:
5 year spreads of major parent banks (basis
points) and Vienna 2.0
700
600
500
400
300
200
100
0
EBA's recapitalization plan
announcement
LTRO1
LTRO2
Unicredit
SocGen
KBC
Intesa
Erste
Raiffeisen
SEB
Nordea
Deposits mostly recovered to pre-crisis
level……
160
ALB
KOS
MNE
SEE6 total
140
120
BIH
MKD
SRB
100
80
60
Dec-11
Jun-11
Dec-10
Jun-10
Dec-09
Jun-09
Dec-08
Jun-08
Dec-07
Jun-07
Dec-06
Jun-06
20
Dec-05
40
…but credit growth has not
(nominal y-o-y growth)
70
60
50
40
30
ALB
BIH
KOS
MKD
MNE
SRB
SEE6 m edian
20
10
0
-10
-20
Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12
…and the reason is mostly NPLs
30
25
20
ALB
BIH
KOS
MKD
MNE
SRB
SEE6 m edian
15
10
5
0
2007:Q1
2007:Q4
2008:Q3
2009:Q2
2010:Q1
2010:Q4
2011:Q3
Changes in unemployment rate are
worrisome (percentage points, 2011/2008)
Levels are high especially in KOS, MKD, BIH
(unemployment rates)
A real worry: Specter of Jobless Growth
(Change in real GDP and employment in
SEE6 (left) and MKD (quarterly) in 2011)
Poverty rates are high ($2.5-5 ppp)
After income losses in 2008-9, growth has not
exactly been pro-poor, except perhaps in MNE
Serbia 2009 - 2010
6
40
Montenegro 2009-2010
Growth incidence
95% confidence bounds
Growth incidence
95% confidence bounds
Growth in mean
Growth at median
Growth in mean
Growth at median
2
Mean growth rate
-10
-6
-2
Annual growth rate %
20
0
-20
-14
-40
20
30
40
50
60
70
Expenditure percentiles
80
90
1
100
10
20
30
40
50
60
70
Expenditure percentiles
-20
0
20
FYR Macedonia 2009-2010
-40
10
Growth incidence
95% confidence bounds
Growth in mean
Growth at median
Mean growth rate
-60
1
Annual growth rate %
Annual growth rate %
Mean growth rate
1
10
20
30
40
50
60
70
Expenditure percentiles
80
90
100
80
90
100
And LITS suggest, people feel severely
affected by the crisis, especially in Serbia..
How much was your HH affected by the crisis?
(% of adults)
A great deal
0
A fair amount
20
40
Montenegro
Albania
Kosovo
BiH
FYROM
Serbia
Source: LiTS II, 2010.
Just a little
60
Not at all
80
100
…mainly via loss of work hours, job or
closure of business
Main crisis impact pathways
(% of crisis-affected population )
Reduction in wages or hours
Job loss or closed business
Reduced flow of remittances
Additional work undertaken
70
60
50
40
30
20
10
0
BiH
Kosovo
Albania
Serbia
Source: LiTS II, 2010.
FYROM
Montenegro
…forcing people to cope, mainly by cutting
“luxuries” and even food
Main crisis coping mechanisms
(% of adult population)
Reduced consumption of luxury goods
Reduced consumption of staple foods
Stopped buying medications / postponed doctor visits
Reduced vacations
Reduced consumption of alcohol / cigarettes
Delayed utilities payments / cut TV, phone, or internet
70
60
50
40
30
20
10
0
BiH
Montenegro
Albania
Serbia
Source: LiTS II, 2010.
Kosovo
FYROM
OUTLOOK FOR SEE6
GLOBAL OUTLOOK--Bottom will come in
2012, growth weak thereafter
Real GDP Growth Assumptions
2010
2011e
2012f
2013f
2014f
World
4.1
2.8
2.5
3.0
3.3
High-income countries
Developing Countries
Memo:
Euro Zone
3.0
7.4
1.6
6.2
1.5
5.5
2.0
5.8
2.3
5.7
-1.8
1.6
-0.3
1.0
1.4
Outlook: SEE6 Growth Will Bottom Out in 2012
at 1.1% before recovering to 2.6% in 2013
Real GDP growth (%)
2012
2013
ALB
1.6
2.5
BIH
0.5
1.5
KOS
4.0
4.1
MK
2.0
3.2
MNE
0.5
1.5
SRB
0.5
3.0
SEE6
1.1
2.6
Key policy challenges in 2012-13:
Fiscal and Public Debt
•
•
•
•
•
Slower growth in 2012
Revenue underperformance
Public debt level and dynamics MNE, SERB, ALB
Wage bill and pensions (esp. BIH)
Financial discipline and public sector arrears (MNE,
ALB, MKD)
• Elections in SERB, MNE (2012) and ALB, MKD
(2013)
Special Fiscal issues: Arrears and
Guarantees
• Arrears emerging in SEE6
• Private sector (MNE, ALB, MKD)
• Public sector (ALB, MKD); Municipal (MNE)
•
Combination of weakness in revenue administration,
control over municipal finances, commitment controls,
credit tightness
• State guarantees--important in some countries
(e.g., MNE, SRB)
Real GDP per capita index (North and
Continental Europe = 100)
EU11, SEE6 and Eastern Partnership
25
20
15
10
5
0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
EU11
SEE
Eastern Partnership
II.
Reasons for optimism: Toward “golden growth”
– SEE6 countries are becoming more integrated with
Western Europe and the world
– SEE6 countries substantially increased their external
trade and trade sophistication
– European “convergence machine”—reduction in
income per capita gap with Western Europe – is
available to SEE6, but with structural reforms
– But aging and shrinking workforce a major challenge
– Taking advantage of trade and financial flows
– SEE6 catching up but limited innovation, R&D
– Reforming labor and government—key challenges
In Sum and the Policy Agenda
• 2012 – Difficult year; risks of contagion
• Short-term challenges: Fiscal, Financial, and Social
– Public debt, arrears and guarantees, financial – credit
market, unemployment and poverty
• Long-term challenges: Reforming labor and public
sectors
• SEE6 reforms anchored in the European future