The World Bank June 5, 2012
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Transcript of The World Bank June 5, 2012
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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
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Outline
I. SEE6: DEVELOPMENTS, OUTLOOK, CHALLENGES
I. TOWARD ‘GOLDEN GROWTH’ IN SEE6
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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
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Global industrial production and imports improved in early 2012
-6
-4
-2
0
2
4
6
8
10
12
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2011M01 2011M04 2011M07 2011M10 2012M01
World IP
Developing IP
High Income IP
percent growth, 3m/3m, saar
Source: Datastream and World Bank Prospects Group
-60
-50
-40
-30
-20
-10
0
10
20
30
40
2009M01 2009M06 2009M11 2010M04 2010M09 2011M02 2011M07 2011M12
Industrial Production (3m/3m)
Import Volume (3m/3m)
percent growth, 3m/3m, saar
Source: Datastream and World Bank Prospects Group
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But financial uncertainty increased in May
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12
Portugal
Ireland
Spain
Italy
Belgium
5-yr sovereign credit-default swap rates (basis points), Jan 2010-May 2012
Source: Bloomberg and World Bank Prospects Group
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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
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SEE6 Real Output Recovery (20018 real GDP index=100)ALB, KOS, MKD well underwayBIH, MNE, SRB lagging. Why?
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It’s partly investment…Except in MKD and KOS
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But consumption and exports are weak as well
Consumption, 2008=100 Exports, 2008=100
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SEE6 region has shifted from trade-led to domestic-demand-led growth, but demand remains sluggish…
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…as reflected in falling inflation rates, despite higher energy prices
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…with remittances providing an economic and social cushion
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Big unexploited potential: exports
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But total public and private external debt getting too high
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…especially public debt (except in KOS)(% of GDP)
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60
70
MNE ALB SRB BIH MKD KOS
2008 2009 2010 2011
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A (temporary?) external relief:5 year spreads of major parent banks (basis
points) and Vienna 2.0
0
100
200
300
400
500
600
700
RaiffeisenErste
Unicredit
IntesaKBC
SocGen
SEB
Nordea
EBA's recapitalization plan announcement
LTRO1LTRO2
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Deposits mostly recovered to pre-crisis level……
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40
60
80
100
120
140
160D
ec-0
5
Jun-
06
Dec
-06
Jun-
07
Dec
-07
Jun-
08
Dec
-08
Jun-
09
Dec
-09
Jun-
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Dec
-10
Jun-
11
Dec
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ALB BIHKOS MKDMNE SRBSEE6 total
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…but credit growth has not(nominal y-o-y growth)
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30
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60
70
Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12
ALB
BIH
KOS
MKD
MNE
SRB
SEE6 median
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…and the reason is mostly NPLs
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15
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25
30
2007:Q1 2007:Q4 2008:Q3 2009:Q2 2010:Q1 2010:Q4 2011:Q3
ALBBIHKOSMKDMNESRBSEE6 median
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Changes in unemployment rate are worrisome (percentage points, 2011/2008)
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Levels are high especially in KOS, MKD, BIH (unemployment rates)
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A real worry: Specter of Jobless Growth(Change in real GDP and employment in SEE6 (left) and MKD (quarterly) in 2011)
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Poverty rates are high ($2.5-5 ppp)
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After income losses in 2008-9, growth has not exactly been pro-poor, except perhaps in MNE
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-10
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Annu
al g
row
th ra
te %
1 10 20 30 40 50 60 70 80 90 100Expenditure percentiles
Growth incidence 95% confidence bounds
Growth in mean Growth at median
Mean growth rate
Serbia 2009 - 2010-4
0-2
00
2040
Ann
ual g
row
th ra
te %
1 10 20 30 40 50 60 70 80 90 100Expenditure percentiles
Growth incidence 95% confidence bounds
Growth in mean Growth at median
Mean growth rate
Montenegro 2009-2010
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-40
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020
Ann
ual g
row
th ra
te %
1 10 20 30 40 50 60 70 80 90 100Expenditure percentiles
Growth incidence 95% confidence bounds
Growth in mean Growth at median
Mean growth rate
FYR Macedonia 2009-2010
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And LITS suggest, people feel severely affected by the crisis, especially in Serbia..
0 20 40 60 80 100
Serbia
FYROM
BiH
Kosovo
Albania
Montenegro
Source: LiTS II, 2010.
(% of adults)
How much was your HH affected by the crisis?
A great deal A fair amount Just a little Not at all
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…mainly via loss of work hours, job or closure of business
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60
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BiH Kosovo Albania Serbia FYROM MontenegroSource: LiTS II, 2010.
(% of crisis-affected population )
Main crisis impact pathways
Reduction in wages or hours
Job loss or closed business
Reduced flow of remittances
Additional work undertaken
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…forcing people to cope, mainly by cutting “luxuries” and even food
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60
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BiH Montenegro Albania Serbia Kosovo FYROMSource: LiTS II, 2010.
(% of adult population)
Main crisis coping mechanisms
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
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OUTLOOK FOR SEE6GLOBAL OUTLOOK--Bottom will come in
2012, growth weak thereafterReal GDP Growth Assumptions
2010 2011e 2012f 2013f 2014f
World 4.1 2.8 2.5 3.0 3.3
High-income countries 3.0 1.6 1.5 2.0 2.3Developing Countries 7.4 6.2 5.5 5.8 5.7
Memo:Euro Zone -1.8 1.6 -0.3 1.0 1.4
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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
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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)
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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)
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Real GDP per capita index (North and Continental Europe = 100)
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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
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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