Regional Economic Outlook and Regional Economic Issues650 700 1980 1986 1992 1998 2004 2010 2016 0...
Transcript of Regional Economic Outlook and Regional Economic Issues650 700 1980 1986 1992 1998 2004 2010 2016 0...
Regional Economic Outlook and
Regional Economic Issues
Bas B. Bakker
Senior Regional Resident Representative
for Central and Eastern and Southeastern Europe
IMF Macroeconomic Policy Seminar
Vienna, February 26, 2018
In the last decade, world has experienced
a lot of shocks
2008/09 global economic and financial crisis
2010/12 Euro area crisis
2014/15 oil price collapse and recession in
large EMCs
2
Until a year ago growth continued to
disappoint
3
3.0
3.5
4.0
4.5
2011 2012 2013 2014 2015 2016 2017 2018
WEO Apr 2014
WEO Apr 2015
WEO Apr 2016
WEO Apr 2017
Global Real GDP growth according to various WEO vintages
(Percent)
The good news is that more recently we
have been upgrading growth forecast
4
3.0
3.5
4.0
4.5
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
WEO Update Jan-2018
WEO Apr-17
WEO Oct-17
Global Real GDP growth according to various WEO vintages
(Percent)
-4
-2
0
2
4
6
8
10
12
14
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
This year, advanced economies are growing around
2 ¼ percent, China and India, 7, other EMCs, 3 ½
5
Real GDP Growth
(Percent)
China and India
EMs
excl. China and India
Advanced Economies
USA will grow by 2.7 percent, euro area by 2.2,
and Japan by 1.2
6
-6
-4
-2
0
2
4
6
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
Real GDP Growth
(Percent)
USA
Euro Area
Japan
5
6
7
8
9
1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013 2016 2019
Unemployment rate in advanced
countries is near pre-crisis low
7
Unemployment Rate in Advanced Economies
(Percent)
But wage growth remains subdued
8
0
1
2
3
4
5
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Euro Area
USA
Nominal Wage Growth
(Percent y/y, 2-quarter moving average)
With recovering oil prices, inflation in advanced
countries has picked up, but remains below target
9
-2
-1
0
1
2
3
4
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
Japan
USA
Euro Area
Inflation
(Percent)
450
500
550
600
650
700
1980 1986 1992 1998 2004 2010 2016
0
500
1000
1500
2000
2500
3000
1980 1986 1992 1998 2004 2010 2016
But stock markets are surging, net worth
in the US is above pre-crisis peak
10
Households Net Worth
(Percent of Disposable Income)
Standard & Poor's 500
Stock Price Index
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
2014 2015 2016 2017 2018 2019 2020
Fed has started to tighten, ECB rates are expected to
remain low for longer
11
US and EA Policy Rates and its’ Forecasts
(Percent)
ECB Survey of Professional Forecasters
Macroeconomic Advisers’ Forecast
Fed
ECB
-10
-8
-6
-4
-2
0
2
4
6
8
10
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
In CESEE, CIS recovering and non-CIS
growing strongly
12
Real GDP growth
(Percent)
CIS
Other CESEE
GDP per capita is well above pre-crisis
level (except Ukraine)
13
NON-CIS CESEE
14
-1
0
1
2
3
4
5
6
7
2011 2012 2013 2014 2015 2016 2017
0
5
10
15
20
25
2011 2012 2013 2014 2015 2016 2017
Growth is rapid, and unemployment is falling sharply
15
Real GDP growth
(Percent)
Unemployment Rate
(Percent)
SEE EUBaltics
CE-5
SEE non-EUSEE EU
Baltics
CE-5
SEE non-EU
-15
-10
-5
0
5
10
15
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Growth in the region is not as high as in
the pre-crisis years
16
Max
Min
Real GDP growth in CESEE excl. CIS
(Percent)
Average
2007 level
2002
2003
2004
2005
2006
2007
2012
2013
2014
2015
2016
2017
-3
-2
-1
0
1
2
0 2 4 6 8
SEE
2002
20032004
2005
2006
2007
20122013
2014
2015
20162017
-1
0
1
2
3
0 1 2 3 4 5 6 7
CE-5
But employment growth in many countries is as high
as during pre-crisis peaks.
17
GDP growth vs. employment growth
(Percent, 2 year average)
2 y
ear
avera
ge e
mp
loym
en
t g
row
th
2 year average GDP growth
Post-crisis
Pre-crisis
Post-crisis
Pre-crisis
-3
-2
-1
0
1
2
SEE CE-5
0
1
2
3
4
5
6
SEE CE-5
Even if we exclude peak pre-crisis years:
current growth is lower but employment growth
higher than pre-crisis
18
GDP and Employment Growth in 2002-04 and 2015-17
(Average, percent)
GDP Growth Employment Growth
2002-0
4
2015-1
7
2002-0
4
2015-17
Inflation, which was very low in 2015-16 has
picked up recently
-2
0
2
4
6
8
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
CPI Inflation
(Percent)
CESEE excl. CIS
Euro Area
Energy and food prices played key role in pick-
up of inflation
20
-50
-40
-30
-20
-10
0
10
20
30
40
2013 2014 2015 2016 2017
Oil Price
Food and
Beverage Price
Index
Oil and Food Prices
(Percent, Y/Y, 6 months moving average)
Growth in 2018 will continue to be strong
External demand expected to remain strong in
the next quarters…
Consumption is solid as employment is
growing rapidly and wages are accelerating
Investment further boosted by pick-up of EU
funds
21
-3
-2
-1
0
1
2
3
2005 2007 2009 2011 2013 2015 2017
Employment growth
Working Age Population
Growth and UN projection
What will this imply for labor markets?
22
Employment and Working Age Population Growth in CESEE
(Excl. TUR and CIS, percent)
In the EU NMS wage growth has accelerated, while it
has remained more modest in the Western Balkans
23
-2
0
2
4
6
8
10
12
14
16
18
MNE BIH MKD SRB POL HRV LVA SVN CZE SVK LTU EST BGR HUN ROU
2017Q3
2015Q4
Nominal Wage Growth
(Percent, Y/Y)
In Western Balkans unemployment rates are
still very high and employment rates low
24
-4
-2
0
2
4
6
8
10
12
14
2007 2010 2013 2016
HRV
SVNBGR
ROU
-4
-2
0
2
4
6
8
10
12
14
2007 2010 2013 2016
LTUEST
CZE
HUN
Unemployment is coming down rapidly and is
now below pre-crisis levels in many countries
25
Cumulative Changes in Unemployment Rate
(2008Q1=0, seasonally adjusted)
LVA
SVK
POL
-4
-2
0
2
4
6
8
10
12
14
2008 2010 2012 2014 2016
SRB
ALB*
MKD
BIHMNE
2017Q3:
-12.2
*For ALB 2012Q1=0
In both regions, rapid decline of unemployment
suggests that GDP is growing faster than potential
At some stage, labor market shortages will
become constraint on growth
Growth can only continue at this pace if
productivity picks up
26
This would be the good time to create
fiscal space and reduce structural deficits
Particularly given that debt is much higher than pre-crisis levels.
27
0
10
20
30
40
50
60
70
80
90
EST UVK BGR CZE LVA LTU ROU MKD BIH SVK POL SRB ALB MNE HUN SVN HRV
2017
2007
General Government Debt
(Percent of GDP)
-5
-4
-3
-2
-1
0
1
2
3
ROU POL HUN SVK HRV EST LVA SVN BGR SRB BIH CZE LTU
Unfortunately, many countries with too high
structural deficits are reverting to pro-cyclical
loosening
28
General Government Structural Balance
(Percent of GDP)
2018
2016
CIS
29
-16
-14
-12
-10
-8
-6
-4
-2
0
Ukraine Belarus Russia
In 2014-15, Russia and Ukraine suffered from
shocks, and Belarus from spillovers
Collapse of commodity prices
Sudden stop in capital flows to Russia, result of sanctions on Russia
Conflict in Ukraine
30
Change in GDP
(percent)
Between
2013-15
Between
2013-16
Exchange rate flexibility was unavoidable
given the limited buffers…
31
20
30
40
50
60
70
80
90
100
110
120
20 30 40 50 60 70 80 90 100 110
RUS
UKRBLR
2013
2014 2014
2014
2015
2015
2015
2016
2016
2016
Foreign reserves and XR depreciation
(6-month moving averages)
USD exchange rate (index, H1’2013=100)
Fo
reig
n r
ese
rves
(USD
in
dex,
H1’2
013=
100)
Depreciation
Reserv
es d
raw
dow
n
-5
0
5
10
15
20
25
30
2004 2006 2008 2010 2012 2014 2016
…but increased inflation and reduced real
wages
32
CPI Inflation in European CIS
(Percent, weighted average)
max
min
0
250
500
750
1000
Q1'2010 Q1'2012 Q1'2014 Q1'2016
RUS
UKR
BLR
Average monthly wages
(USD)
-20
-15
-10
-5
0
5
10
15
20
2005 2007 2009 2011 2013 2015 2017
Ukraine and Russia are now recovering (helped
by rising oil prices)
33
-100
-75
-50
-25
0
25
50
75
100
-20
-15
-10
-5
0
5
10
15
20
2005 2008 2011 2014 2017
RUS
Oil prices
(right axis)
Real GDP growth in Russia, other CIS countries and changes in oil prices
(Percent, y/y)
UKR
RUS
BLR
Moldova had a banking crisis in 2014
Three large banks collapsed as a result of their
long-lasting abuse by the shareholder(s)
Supervisory action was slow to come
Supervisory forbearance increased the ultimate
resolution costs to the budget
34
-6
-4
-2
0
2
4
6
8
10
12
14
16
2011 2012 2013 2014 2015 2016 2017
But is now also recovering
35
Real GDP Growth in Moldova
(Percent, y/y)
Near-term prospects show solid growth
36
0
1
2
3
4
BLR RUS UKR MDA
Real GDP Growth Projections
(Percent)
2017
2019
2018
But growth is low in comparison to pre-
crisis period
37
-6
-4
-2
0
2
4
6
8
10
12
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Real GDP Growth
(Percent, 3-year moving average)
UKR
RUS
BLR
MDA
THE FUTURE OF CONVERGENCE
38
Convergence has resumed (except in
CIS)
39
10
20
30
40
50
60
70
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Real GDP per capita
(Percent of Germany)
CE-5
Baltics
SEE EU
CIS
SEE non-EU
But CESEE is still much poorer than
Western Europe
40
ALB
AUT
BEL
BGR
BIH
CZE
DEU DNK
ESP
EST
FINFRA
GBR
GRC
HRV
HUN IRL
ITA
LTULVA
MDA
MKD MNE
NLD
POL
PRT
ROU
RUS
SRBSVK SVN
SWE
TUR
UKR
20
25
30
35
40
45
50
0 100 200 300 400 500 600 700
Em
plo
ym
en
t to
po
pu
lati
on
rati
o in
2016
(Perc
en
t)
Capital per worker in 2014
(Thousands of PPP dollars)
As fewer people work and there is less capital
per worker
4141
Capital per Worker vs. Employment to Population Ratio
-6
-4
-2
0
2
4
6
8
10
2002 2004 2006 2008 2010 2012 2014 2016
Growth is slower than pre-crisis…
42
GDP growth
(Percent, 3 year moving average)
SEE non-EU
Baltics SEE EUCE-5
CIS
As investment rates are lower (except CIS)
43
15
20
25
30
35
2002 2004 2006 2008 2010 2012 2014 2016
Baltics
SEE non-EU*
CIS
SEE EU
CE-5
*Excl. MKD
Investment Rate
(Percent of GDP, 3 year moving average)
-2
-1
0
1
2
3
4
5
6
7
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Technological progress and efficiency
advance much more slowly
44
TFP Growth
(Percent, 5-year moving average)
SEE non-EU
Baltics
CE-5
SEE EUCIS
-2.0
-1.5
-1.0
-0.5
0.0
0.5
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Further exacerbated by the decline of the
working age population
45
Working Age Population Growth
(Population ages 15-64 years, 5 year moving average)
Baltics
SEE EU
CE-5
SEE non-EU
CIS
-1.0
-0.5
0.0
0.5
1.0
1.5
2000 2002 2004 2006 2008 2010 2012 2014 2016
Fall in TFP is a global problem
46
EU15
USA
TFP growth
(Percent, 5 year moving average)
Why has global TFP growth slowed?
47
Several interrelated factors have played a
role
To some extent measurement issues
Weak corporate balance sheets, tight credit conditions which constrain investment in intangible assets
An adverse feedback loop of weak aggregate demand, investment, and capital-embodied technological change
Elevated economic and policy uncertainty
48
What can be done to boost TFP growth
49
Address several problems
Limited access to financial
services (e.g. for SMEs)
Infrastructural gaps
Inefficient legal systems and
other government services
Improve institutions, especially judiciary
50
Judicial Independence, 2015
Source: World Economic Forum. Note: Worldwide distribution excluding LICs
Above 75 percentile Between 25 and 75 percentile Below 25 percentile
Impartial Courts, 2015
Other institutional indicators also show a
room to catch up to Western Europe
51
World Governance Indicators, 2016
(Ranges from -2.5 (weak) to 2.5 (strong) governance performance)
2.0
2.5
3.0
3.5
4.0
BLR
UV
K
BIH
SR
B
MD
A
UK
R
RU
S
MN
E
ALB
MK
D
SV
N
RO
U
BG
R
HR
V
CZ
E
HU
N
LV
A
LTU
SV
K
PO
L
EST
EU accession process should lead to improved
institutions / completion of transition
52
Average of Six EBRD Transition Indicators in 2014
EU countries
non-EU countries
Note: 2007 for Czech Republic.
Institutional reforms provide large
efficiency gains
53
Better institutions hold the promise of retaining emigration of skilled workers
Effective protection of property rights provides stronger incentives for investment
Institutions affect innovation and productivity through enhanced trust, cooperation, commitment, and contract enforcement
CONCLUSION
54
Concluding thoughts
CESEE has done nicely in recent years with strong
growth and rapidly declining unemployment
Growth is not as high as pre-crisis
The challenge will be to continue current growth
rates
Productivity growth will need to pick up; at some
stage labor market will become constraint
Reforms and improvements of institutions will help
55
Thank you