Economic Crisis: The Way Out?Economic Crisis: The Way Out?An Eastern European PerspectiveAn Eastern European Perspective 

Sándor Meisel – Krisztina VidaSándor Meisel – Krisztina VidaInstitute for World EconomicsInstitute for World Economics

Research Research CCentre for Economic and Regional Studies of the HASentre for Economic and Regional Studies of the HAS

Post-Crisis Economic Developmentof the EU and Bulgaria

Sofia, 18-19 October 2012

Objectives and challenges

• Fiscal stabilisation: government deficits

government depts

• Reform of the systems of redistribution: sustainability

• Growth and convergence

• Competitiveness

Political conditions

• Relative stability– exception: RO– elections: LT and RO

• Living standards (GDP/cap)

• Employment rates

• Unemployment

Slow catching up with differences(GDP/cap, EU27=100%)

GDP/fő (EU27=100)

0

20

40

60

80

100

120

2006 2007 2008 2009 2010 2011

EU15

BG

CZ

EE

LV

LT

HU

PL

RO

SI

SK

Low but slightly improving employment

Foglalkoztatás

0

10

20

30

40

50

60

70

80

2006 2007 2008 2009 2010 2011

EU27

BG

CZ

EE

LV

LT

HU

PL

RO

SI

SK

Relatively high unemployment

Munkanélküliség

02468

101214161820

2006 2007 2008 2009 2010 2011

EU27

BG

CZ

EE

LV

LT

HU

PL

RO

SI

SK

Economic conditions

• Growth• Investments• FDI• Foreign trade • Current account balance• Inflation• Public finances and reforms

Improving growth expectations?(GDP growth, annual change, %)

GDP-változás az előző év százalékában

-20

-15

-10

-5

0

5

10

15

2007 2008 2009 2010 2011 2012 2013

EU27

BG

CZ

EE

LV

LT

HU

PL

RO

SI

SK

Gross fixed capital formation(as % of GDP)

Bruttó állótőke-felhalmozás/GDP

0

5

10

15

20

25

30

35

40

45

2007 2008 2009 2010 2011 2012 2013

EU27

BG

CZ

EE

LV

LT

HU

PL

RO

SI

SK

Declining FDI inflow(EUR billion)

FDI (mrd. euró)

-10

0

10

20

30

40

50

60

2007 2008 2009 2010 2011 2012

SK

SI

RO

PL

HU

LT

LV

EE

CZ

BG

Current account balance(as % of GDP)

Folyó fizetési mérleg/GDP

-30

-25

-20

-15

-10

-5

0

5

10

15

2006 2007 2008 2009 2010 2011

EU27

BG

CZ

EE

LV

LT

HU

PL

RO

SI

SK

Lower inflation rates: are they sustainable?

HICP

-4-202468

1012141618

2007 2008 2009 2010 2011 2012 2013

EU

BG

CZ

EE

LV

LT

HU

PL

RO

SI

SK

Government deficit: improving trends

(as % of GDP)

Költségvetési egyenleg/GDP

-12

-10

-8

-6

-4

-2

0

2

4

6

2007 2008 2009 2010 2011 2012 2013

EU27

BG

CZ

EE

LV

LT

HU

PL

RO

SI

SK

Public finances: common features of the reforms

• Income: – increasing taxes– new taxes– improvements in tax collection– privatisation

• Expenditure:– streamlining the public administration– freezing (cutting) the wages in the public sector– reform of the pension and health care system– Reshaping of the social payments

• Changes in the level of redistribution between 2008-12:– decreasing level: BG, RO, LT– same level: LV, HU, PL– increasing level: CZ, EE, SK, SI

Growing public dept(as % of GDP)

Államadósság/GDP

0102030405060708090

2007 2008 2009 2010 2011 2012 2013

EU27

BG

CZ

EE

LV

LT

HU

PL

RO

SI

SK

Competiveness

• Labour productivity per person employed

• Real unit labour cost

• Innovation ranking

Labour productivity per person: slow improvements

Termelékenység/foglalkoztatott

0

20

40

60

80

100

120

2006 2007 2008 2009 2010 2011

EU27

BG

CZ

EE

LV

LT

HU

PL

RO

SI

SK

Real unit labour cost: favourable trends from the point of view of competition, but slow catching up

of wages

ULC változása

-10-8-6

-4-2024

68

10

2006 2007 2008 2009 2010 2011

EU27

BG

CZ

EE

LV

LT

HU

PL

RO

SI

SK

Innovation performance

Countries Ranking in the EU

Performance

PL 23. Moderate innovation potential

CZ 17. Moderate innovation potential

SK 22. Moderate innovation potential

HU 19. Moderate innovation potential

SI 12. Innovation follower

EE 14. Innovation follower

LV 27. Modest innovation potential

LT 25. Modest innovation potential

RO 24. Modest innovation potential

BG 26. Modest innovation potential

Conclusions

• Crisis slowed down catching up

• In 2011 recovery, in 2012 more modest trends better outlook in 2013

• The pre-crisis dynamism is not likely to return

• Probably more balanced and sustainable growth path, depending on the external conditions

• Public finances on the way of slow consolidation