Economic Prospects for CESEE wiiw Spring Seminar, 7 April 2016 Europe’s Integration Challenged...

Wiener Institut für Internationale Wirtschaftsvergleiche

The Vienna Institute forInternational EconomicStudies

www.wiiw.ac.at

wiiw Spring Seminar, 7 April 2016

Gábor Hunya

Economic Prospects for CESEE

2wiiw Spring Seminar, 7 April 2016Europe’s Integration Challenged

� 2015 GDP growth - higher than expected in the EU-CEE and WB – reached peak

- lower in the CIS-3 and UA – bottoming out in late 2016

Main questions after a year of consumption revival/decline:- Will investments contribute more to future growth?- Can Russia and UA overcome the depression?

� Future growth factors for EU-CEE and WB based on stability achieved: - household consumption the main driver – real wages rise (low inflation)

- emigration leads to labour shortages and pressure on wages

- reviving investments, both public and private – EU transfers cyclical

- more fiscal space following rebalancing, except in HR, HU, RS, SI

- current account balance will deteriorate within narrow margins

- risks stemming from global and EU growth slowdown (assumptions: EC Winter Forecast)

� CIS and UA depressed by low oil prices, depreciation, inflation, rebalancing needs, conflicts and embargoes – future depends on oil prices and reforms


Quarterly real GDP growth of the CESEE countries, change in % against preceding year

Divergence of economic growth: EU-CEE, WB and Turkey rise, CIS-3 and Ukraine fall

0

2

4

6

8

BG CZ HU

PL RO SK

2468

10EE HR LT LV SI

Source: National and Eurostat statistics.

-6

-4

-2

0

1Q 10 1Q 11 1Q 12 1Q 13 1Q 14 1Q 15 4Q 15-6-4-20

1Q 10 1Q 11 1Q 12 1Q 13 1Q 14 1Q 15 4Q 15

-10

-5

0

5

10

15

1Q 10 1Q 11 1Q 12 1Q 13 1Q 14 1Q 15 4Q 15

AL BA ME

MK RS XK

-20

-15

-10

-5

0

5

10

15

1Q 10 1Q 11 1Q 12 1Q 13 1Q 14 1Q 15 4Q 15

BY KZ RU UA TR


2015 2016 2017 2018BG 3.0 2.5 2.5 2.7HR 1.6 1.4 1.8 2.0CZ 4.3 2.4 2.3 2.4EE 1.1 2.2 2.4 2.6HU 2.9 2.2 2.3 2.9LV 2.7 3.0 3.2 3.5LT 1.6 3.0 3.4 3.5PL 3.6 3.4 3.2 3.4RO 3.7 4.0 3.0 3.5

Forecast, %

EU-CEE

Greens and reds: real GDP growth forecast and revisions

RO 3.7 4.0 3.0 3.5SK 3.6 3.0 3.2 3.3SI 2.9 2.0 2.3 2.8AL 2.6 3.2 3.5 3.6BA 2.3 2.9 2.9 3.1XK 3.7 3.9 4.3 4.0MK 3.7 3.4 3.1 3.1ME 3.2 2.8 2.8 3.1RS 0.7 1.6 1.7 2.0

Turkey TR 3.3 3.2 3.1 3.0BY -3.9 -2.6 0.5 1.5KZ 1.2 1.0 2.5 3.5RU -3.7 -0.8 0.8 1.8UA -9.9 0.0 1.9 2.5

Western Balkans

CIS-3 +UA

Colour scale reflects variation from the minimum (red) to the maximum (green) values.Source: wiiw Annual Database incorporating national and Eurostat statistics; wiiw forecast.


GDP growth in 2015-2018 and contribution of individual demand components in the EU-CEE, in percentage points

Main growth drivers: household consumption and investment

6

8

Household final consumption Government final consumption Gross fixed capital formation

Change in inventories Net exports GDP total

Source: wiiw Annual Database incorporating national and Eurostat statistics; own calculations. Forecasts by wiiw.

'15 '16 '17 '18

EU-CEE

-4

-2

0

2

4

6

BG CZ EE HR HU LT LV PL RO SI SK


Household final consumption Government final consumption Gross fixed capital formation

Change in inventories Net exports GDP total

6

8

GDP growth in 2015-2018 and contribution of individual demand components in the WB, Turkey, CIS-3 and Ukraine, in percentage points

Westerns Balkans similar to EU-CEE; austerity in CIS+UA

4

6

8

-4

-2

0

2

4

6

AL BA ME MK RS TR XK

Source: wiiw Annual Database incorporating national and Eurostat statistics; own calculations. Forecasts by wiiw.

Western Balkans + TR CIS-3 + UA

'15 '16 '17 '18

'15 '16 '17 '18

-16

-14

-12

-10

-8

-6

-4

-2

0

2

4

BY KZ RU UA


Gross fixed capital formation in % of GDP

Investment revival after temporary decline

25

30

BG CZ HU

PL RO SK

25

30EE HR LT LV SI

Source: wiiw Annual Database incorporating national and Eurostat statistics; wiiw forecasts.

15

20

2012 2013 2014 2015 2016 2017 201815

20

2012 2013 2014 2015 2016 2017 2018

10

15

20

25

30

35

40

2012 2013 2014 2015 2016 2017 2018

AL BA ME

MK RS XK

10

15

20

25

30

35

40

2012 2013 2014 2015 2016 2017 2018

BY KZ RU TR UA


Stock of private bank loans, % GDP, 2010-2015

Conditions for private investment start improving: bank loans from deleveraging to recovery; less non-performing loans; slightly more greenfield FDI; higher profits

80

90

100 2010 2012 2014 2015

Note: Private bank loans comprise loans of non-financial corporations and households taken from banking statistics. Source: National Bank statistics, wiiw own calculations.

0

10

20

30

40

50

60

70

BG CZ EE HR HU LT LV PL RO SI SK AL BA ME MK RS TR KZ RU UA


Fiscal stance of the CESEE countries, 2015

Conditions for public investment: fiscal space dependent on debt level …

AL

HR

HURS

SI UA

70

80

90

100

Gen

eral

gov

ernm

ent g

ross

deb

t,

Note: Axes denote the limits included in the EU Excessive Deficit Procedure: for debt 60% of GDP, for deficits 3% of GDP.Source: wiiw Annual Database incorporating national and Eurostat statistics.

BA

BG

BYCZ

EE

KZ

LT

LV

ME

MKPL

RO

RU

SK

TR

XK

0

10

20

30

40

50

60

70

-8.0 -6.0 -4.0 -2.0 0.0 2.0

Gen

eral

gov

ernm

ent g

ross

deb

t,in

% o

f GD

P

General government balance in % of GDP


HungaryLithuania

LatviaPoland

RomaniaSloveniaSlovakiaAlbania

MacedoniaMontenegro

SerbiaInterest Primary balance

General government net lending (+) or net borrowing (-), in % of GDP, 2013 and 2015

… but not all make use of it

2013

-15 -12 -9 -6 -3 0 3 6

BulgariaCzech Republic

EstoniaCroatia

Hungary

-15 -12 -9 -6 -3 0 3 6

BulgariaCzech Republic

EstoniaCroatia

HungaryLithuania

LatviaPoland

RomaniaSloveniaSlovakiaAlbania

MacedoniaMontenegro

Serbia

Source: AMECO.

2015


Period per cent of GDP

General government investments and capital transfers received in % of GDP, change 2016/2015

Public investments temporarily curtailed due to decline in EU transfers in 2016; recovery expected

EEHRPL0.0

0.5

Ge

ner

al g

over

nmen

t gro

ss fi

xed

cap

ital f

orm

atio

n

Average net financial position of the EU-CEE-10 in 2007-2014 and wiiwforecast, in % of GDP

2007-2008 1.3

2009-2011 2.5

2012-2014

2015 estimated

3.2

up to 6

2016-2017 forecast 1.0 – 2.5

EFSI loans forecast 2016-2017 0.5 – 1.5

Source: AMECO.

BG

CZ

HR

LVLT

HU

PL

RO

SI

SK

-3.0

-2.5

-2.0

-1.5

-1.0

-0.5

0.0

-2.0 -1.5 -1.0 -0.5 0.0 0.5Ge

ner

al g

over

nmen

t gro

ss fi

xed

cap

ital f

orm

atio

n in

% o

f GD

P

General government: capital transfers received, in % of GDP


Current account balance versus external debt, 2010-2015

Current account deficit shrank / surplus increased in high-debt EU-CEE;deficits shrank but debt increased in WB

HR

HU

LV

SI

100

120

140

160

Gro

ss e

xter

nal d

ebt,

% o

f GD

P

HRHU

LV

SI

UA

100

120

140

160

Gro

ss e

xter

nal d

ebt,

% o

f GD

P

HRHU

Note: Orange dots: 2015. Grey dots: average 2010-2014.Source: wiiw Annual Database incorporating national and Eurostat statistics.

ALBA

BG

BY CZ

EEHR

KZLT

ME

MKPLRO

RS

RU

SK

TR

UA

XK

0

20

40

60

80

100

-20 -15 -10 -5 0 5 10

Gro

ss e

xter

nal d

ebt,

% o

f GD

P

Current account balance, % GDP

AL

BA

BGBY

CZ

EEKZ

LT

ME

MKPL

RO

RS

RU

SK

TR

XK

0

20

40

60

80

100

-20 -15 -10 -5 0 5 10

Gro

ss e

xter

nal d

ebt,

% o

f GD

P

Current account balance, % GDP

HRHR


BOP components in % of GDP, 2015

Mainly positive current and capital accounts in EU-CEE; negative current accounts in WB

10.0

15.0

Net errors and omissions Financial account, net Capital account balance Current account balance

Source: wiiw Annual Database incorporating national and Eurostat statistics.

-15.0

-10.0

-5.0

0.0

5.0

10.0

BG CZ EE HR HU LT LV PL RO SI SK AL BA ME MK RS TR XK BY KZ RU UA


Primary income, compensation of employees, credit in % of GDP and secondary income, remittances, credit, in % of GDP, 2010 and 2014

Increasing private transfers in the wake of emigration

6

7

8Remittances Compensation

Remark: No data for 2010 compensation in SK and ME, for 2010 remittances in RO, SK, ME, RS. Source: Eurostat.

0

1

2

3

4

5

6

10 14 10 14 10 14 10 14 10 14 10 14 10 14 10 14 10 14 10 14 10 14 10 14 10 14 10 14

BG CZ EE HR HU LT LV PL RO SI SK ME MK RS


Unemployment rates decline in response to economic recovery

Demography and emigration lead to labour shortages in EU-CEE

1

Natural change Migration

Cumulative net migration and natural population change, 2011-2014, in % of 2010 population

20

BG CZ EE HR HU LT

LV PL RO SI SK


-5

-4

-3

-2

-1

0

BG CZ EE HR HU LT LV PL RO SI SK

0

2

4

6

8

10

12

14

16

18

20

2013m03 2013m09 2014m03 2014m09 2015m03 2015m092015m12


GDP per capita, at PPS, EU-28 average = 100

Catching up at 1-2 pp p.a. except HR, RS, BY, RU, UA

70

80

90

1002010 2015 2018


0

10

20

30

40

50

60

BG CZ EE HR HU LT LV PL RO SI SK AL BA ME MK RS TR XK BY KZ RU UA


� GDP growth in 2015 was either peak or trough

� 2016-2018 GDP in EU-CEE, Western Balkans and Turkey +3% p.a.

� In CIS+UA anaemic growth returns in 2017

- dependent on oil price and structural reforms

� Household consumption the main growth driver but investments will recover

Main messages

� Household consumption the main growth driver but investments will recover

� Conditions of private investments improve in EU-CEE

� Temporary decline in EU transfers in 2016; Juncker Plan no substitute

� Demography and emigration lead to labour shortages in EU-CEE

� More risks ahead if global economic growth falters; China, EU stumble; commodity prices fluctuate

Wiener Institut für Internationale Wirtschaftsvergleiche

The Vienna Institute forInternational EconomicStudies

www.wiiw.ac.at

wiiw Spring Seminar, 7 April 2016

Gábor [email protected]

Thank you for your attention


Country codes (in alphabetic order) and abbreviations

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

HU Hungary SK Slovakia

KZ Kazakhstan TR Turkey

LT Lithuania UA Ukraine

LV Latvia XK Kosovo

EFSI European Fund for Strategic Investments

CESEE Central, East and Southeast Europe

CIS Commonwealth of Independent States

EU-CEE European Union – Central and Eastern Europe

Economic Prospects for CESEE wiiw Spring Seminar, 7 April 2016 Europe’s Integration Challenged...

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