mixed prospects: consumption leads fragile recovery in … conference, 12 november 2015 new wiiw...

Wiener Institut für Internationale Wirtschaftsvergleiche

The Vienna Institute forInternational EconomicStudies

www.wiiw.ac.at

Press conference, 12 November 2015

New wiiw forecast for Central, East and Southeast Europe, 2015-2017

Mixed Prospects: Consumption leads fragile recovery in the CESEE core — CIS stumbles

Amat Adarov andMario Holzner

2

2015 2016 2017 2015 2016 2017BG 2.3 2.6 3.0 0.8 0.7 0.7HR 0.7 1.2 1.6 0.4 0.1 0.1CZ 3.9 2.4 2.3 1.6 0.0 -0.1EE 1.9 2.6 2.8 -0.1 0.1 -0.3HU 2.9 2.1 2.0 0.6 0.1 0.0LV 2.4 3.0 3.0 0.3 0.2 0.2LT 1.6 3.0 3.4 -0.4 0.1 0.2

Forecast, % Revisions, pp

NMS-11

Growth forecast revised upwards for most CESEE countries

Real GDP growth forecast and revisions relative to wiiw Spring 2015 Forecast

Source: wiiw forecast

LT 1.6 3.0 3.4 -0.4 0.1 0.2PL 3.5 3.3 3.3 0.0 0.1 0.1RO 3.4 3.7 2.7 0.9 0.6 -0.3SK 3.2 3.0 2.9 0.7 0.3 -0.1SI 2.7 2.2 2.3 1.0 0.4 0.3AL 2.6 3.2 3.6 0.6 1.0 1.2MK 3.4 2.7 3.1 -0.1 -0.2 0.5ME 2.4 2.6 2.8 0.1 0.0 -0.1RS 0.1 0.9 1.4 0.6 -0.1 0.0TR 3.0 3.1 3.1 -0.3 -0.4 -0.4BA 1.8 2.3 2.4 0.2 0.2 0.0XK 4.3 3.5 4.1 0.7 0.6 0.3BY -3.8 0.0 1.4 -1.8 -1.3 -0.6KZ 1.5 2.5 3.5 -0.5 -1.0 -1.0RU -3.7 1.0 1.4 0.2 -0.9 -0.6UA -11.5 0.0 1.8 -6.5 0.0 0.0

CIS+UA

Candidatecountries

Potential candidatecountries

3

2015 2016 2017 2015 2016 2017BG 2.3 2.6 3.0 0.8 0.7 0.7HR 0.7 1.2 1.6 0.4 0.1 0.1CZ 3.9 2.4 2.3 1.6 0.0 -0.1EE 1.9 2.6 2.8 -0.1 0.1 -0.3HU 2.9 2.1 2.0 0.6 0.1 0.0LV 2.4 3.0 3.0 0.3 0.2 0.2LT 1.6 3.0 3.4 -0.4 0.1 0.2


NMS-11

While CE & RO continue robust recovery…



CIS+UA

Candidatecountries



4

2015 2016 2017 2015 2016 2017BG 2.3 2.6 3.0 0.8 0.7 0.7HR 0.7 1.2 1.6 0.4 0.1 0.1CZ 3.9 2.4 2.3 1.6 0.0 -0.1EE 1.9 2.6 2.8 -0.1 0.1 -0.3HU 2.9 2.1 2.0 0.6 0.1 0.0LV 2.4 3.0 3.0 0.3 0.2 0.2LT 1.6 3.0 3.4 -0.4 0.1 0.2


NMS-11

… the CIS and UA slip into recession or decelerate



CIS+UA

Candidatecountries



5

2015 2016 2017 2015 2016 2017BG 2.3 2.6 3.0 0.8 0.7 0.7HR 0.7 1.2 1.6 0.4 0.1 0.1CZ 3.9 2.4 2.3 1.6 0.0 -0.1EE 1.9 2.6 2.8 -0.1 0.1 -0.3HU 2.9 2.1 2.0 0.6 0.1 0.0LV 2.4 3.0 3.0 0.3 0.2 0.2LT 1.6 3.0 3.4 -0.4 0.1 0.2


NMS-11

Baltics: on track despite negative spillovers from RUSEE: growth dynamics pick up



CIS+UA

Candidatecountries



6

7.6

7.8

8

3

4EU euro area GermanyUSA China (rhs)

External conditions:Advanced economies recovering, emerging markets slowing down…

Real GDP growth rates of selected economies, yoy, %

Source: World Bank

6.4

6.6

6.8

7

7.2

7.4

7.6

-2

-1

0

1

2

7

140

160 Energy Food Metals

… commodity prices weakening

World Bank’s commodity price indices; 2010=100

Source: World Bank

40

60

80

100

120

8

CE and Romania SEE

Protracted recovery after double-dip recession

Quarterly real GDP growth, yoy

The Baltics CIS, Ukraine and Turkey

Source: National statistics and Eurostat

9

Household final consumption

Government final consumption

Gross capital formation

Real GDP growth and contributions, 2014-2016

Household consumption main growth engine in most CESEE

-2

0

2

4

6

'14 '15 '16

-8

-6

-4

-2

0

2

4

6

8

10

RS BA ME MK TR AL XK BY RU KZ

Source: wiiw Annual Database and forecast

formation

Net exports of goods and NFS

GDP total (growth in %)

-16-14-12-10-8-6-4-202468

10

UA

NMS-11

'14 '15 '16

-4HR HU SI CZ EE BG SK LV LT PL RO

Candidate and potential candidate countries CIS-3

10

LFS Unemployment rate, selected years 2008-2017

Consumption-led growth associated with receding unemployment…

Note: Registered unemployment for Belarus

forecast


unemployment rate above 10% in 2014 unemployment rate below 10% in 2014

11

CZ

EE

LT

PL

RO

XK

46

chan

ge in

hou

seho

ld c

onsu

mpt

ion

2014

-201

5, r

eal %

Household consumption and real wages, 2014-2015

… and rising real wages


BG

HR

CZ

HULVSK

SI

AL

ME

BA

BY

KZMK

RS

-20

2ch

ange

in h

ouse

hold

con

sum

ptio

n 20

14-2

015,

rea

l %

-5 0 5 10change in average monthly gross wages 2014-2015, real %

Note: Dropping RU and UA. Bubble size corresponds to unemployment rate in 2015, ranging from the highest (XK=34%) to the lowest (BY=0.5%)

12

CPI inflation, yoy, 2015

bolstered by weak inflation (deflation) in most CESEE…

with the exception of CIS, UA, TR, where inflation spiked…

Source: wiiw Monthly Database

Moderate / high inflation

Deflation Low inflation

13

60

70

80

90

Change in nominal exchange rate (national currency / $), August 2015 yoy, %

…as a result of sharp devaluations (CIS, UA, TR)

Source: wiiw Monthly Database

0

10

20

30

40

50

euro BA BG HR MK AL CZ HU KZ PL RO RU RS TR UA

Floating exchange ratesFixed exchange rates / euro

14

RO

MK

XK

CZHU

PLBA10

20Change in exports vs change in imports in 2014, real % yoy

Weak currencies support exports, yet, rising imports render net exports less significant


RO

BG

HR

TR

SISK

RS

LV

LTEE

RU

ME

KZ

AL

UA-20

-10

0Im

port

s, r

eal g

row

th %

-20 -10 0 10 20Exports, real growth %

15

60

80

100

120

140AL

BA

BG

CZSK

TR

UA private debt

public debt

Private and public debt, 2014, % GDP

Private investment lagging, constrained by high debt and NPLs

Source: Annual Database and estimates

0

20

40

60EE

HR

HU

KZ

LT

LVME

MK

PL

RO

RS

RU

SI

16

Allocation of EU funds under 2014-2020 Multiannual Financial Framework,EUR per capita

EU funds expected to alleviate investment needs…

Source: wiiw calculations based on European Commission’s data

17

Fiscal stance in CESEENote: orange dots: 2014, grey dots: average 2009-2013. Lines correspond to the Maastricht criteria.

…while public investment depends on fiscal space

ALHR

HU

AL

HR

HU

ME

RS

SI

SK

UA

6080

Gen

eral

gov

ernm

ent g

ross

deb

t, to

tal,

in %

of G

DP

Source: wiiw Annual Database

ROBA

BG

BYCZ

EE

KZ

LT

LV

ME

MK

PL

RO

RS

RU

SISK

TR

UA

XK

BA

BG

BYCZ

EEKZ

LTLV

ME

MK

PL

RU

SK

TR

XK

020

40G

ener

al g

over

nmen

t gro

ss d

ebt,

tota

l, in

% o

f GD

P

-8 -6 -4 -2 0 2General government balance, % of GDP

18

1020

Cha

nge

in th

e cu

rren

t acc

ount

bal

ance

as

a sh

are

of G

DP

, pp

Household consumption vs current accountNote: each dot represents a CESEE country; orange dots: 2014; grey dots: 2005-2013

Rising consumption risks deteriorating current account…


BG

CZ EE

HR

HU

LT

LVMK

PL

RORUSI

SK

-10

010

Cha

nge

in th

e cu

rren

t acc

ount

bal

ance

as

a sh

are

of G

DP

, pp

-20 -10 0 10 20Change in household consumption, real %

19

2040

Cha

nge

in a

vera

ge g

ross

wag

es, r

eal (

CP

I bas

ed)

%

Change in real wages vs change in unit labour costs, 2010-2015Note: each dot represents a CESEE country; orange dots: 2015; grey dots: 2010-2014

... and increasing wages may erode competitiveness(unless associated with productivity gains)


BGHR

CZEE

HU

LALT

PL

RO

SKSI ALMK

MERS

BABY

KZ

RU

UA

AT

-40

-20

0C

hang

e in

ave

rage

gro

ss w

ages

, rea

l (C

PI b

ased

) %

-40 -20 0 20 40Change in unit labour costs, ER adjusted (EUR) %

20

Current account vs gross external debtNote: orange dots: 2014; grey dots: 2009-2013

…of particular concern for countries with external imbalances

HR HU

LV

SI

UA EE

HU

LV

SI

100

150

Gro

ss e

xter

nal d

ebt,

% o

f GD

P


BG

LTMKAL

BABY

CZ

EE

KZ

ME

PLRO

RS

RU

SK

TR

UA

XK

AL BA

BG

BY CZ

EEHR

KZLT

ME

MKPLRO

RS

RU

SK

TR

UA

XK

050

100

Gro

ss e

xter

nal d

ebt,

% o

f GD

P

-20 -10 0 10Current account, % of GDP

21

GDP per capita at current PPPs (EUR), EU average = 100

…and important in light of stalling income convergence

NMS Candidate and potential candidate countries

Source: wiiw Annual Database, wiiw forecast, Eurostat, European Commission

CIS+UA CESEE subgroups and selected advanced economies

22

Stronger trade links with CESEE do not seem to harm Austrian growth dynamics in the longer run

GDP index, 2000=100

125

130

Germany Netherlands Austria

15

Goods exports to CESEE 2014in % of GDP

Source: Eurostat, wiiw Annual Database

90

95

100

105

110

115

120

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

0

5

10

23

External risks may jeopardise recovery in the CESEE

� Geopolitical tensions: Russia/Ukraine, the Middle East

� Slowdown in China and other emerging markets

� Normalisation of monetary policy in the USA

� Subdued oil prices (asymmetric effects for CIS vs other CESEE)

� Refugee crisis in Europe

� Recession and import-substitution in Russia

� Volkswagen scandal

24

Summary

� Economic outlook of CESEE is improving, forecast revised upwards

� Forecast growth (dropping CIS & UA): +3% in 2015

� Sub-regional growth trends are diverging:

• CE continues robust recovery (2-4% per annum)• CIS face poor prospects unless oil price recovers (RU, BY: -4%)

• CIS face poor prospects unless oil price recovers (RU, BY: -4%)• Baltics despite negative spillovers from RU still on track (1.5-3%)• SEE improving growth trends (RS, HR <1%, others: 2-4%)• UA: deeper recession (-11.5%) might be bottoming out

� Household consumption – key growth driver

� Private investment still lagging, EU funding is important

� External environment is moderately supportive, downside risks persist

Wiener Institut für Internationale Wirtschaftsvergleiche

The Vienna Institute forInternational EconomicStudies

www.wiiw.ac.at

New wiiw forecast for Central, East and Southeast Europe, 2015-2017

Thank you for your attention!

Amat Adarov andMario Holzner

[email protected] [email protected]

26

Country codes (in alphabetic order)

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

HR Croatia SI Slovenia

HU Hungary SK Slovakia

KZ Kazakhstan TR Turkey

LT Lithuania UA Ukraine

LV Latvia XK Kosovo

CE Central Europe

CESEE Central, East and Southeast Europe

CIS Commonwealth of Independent States

NMS New Member States

SEE Southeast Europe

mixed prospects: consumption leads fragile recovery in … conference, 12 november 2015 new wiiw...

Documents