World Bank Global Economic Prospects

Some comments

National Bank of Poland,

Warsaw, January 11, 2016

Bas B. Bakker

Senior Regional Resident Representative

for Central and Eastern Europe

Three topics

1. Slowdown in EMEs

2. Resilience of non-CIS CESEE

3. CESEE regional differences

Slowdown in Emerging Markets

Growth in emerging market has slowed down

Is this temporary?

Or is it more structural?

-4

-2

0

2

4

6

8

10

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Emerging economies

World

Advanced economies

projections

Real GDP growth (percent y/y)

Report attributes slowdown to “shocks”

Shocks have no doubt have played a role.

Commodity price shocks

Tightening of global financial conditions

But there is also question whether growth model

itself was sustainable.

Would rapid growth have continued without

shocks?

It is not just actual output that has been

revised!

120

130

140

150

160

170

180

190

2007 2010 2013 2016

150

160

170

180

190

200

210

220

2007 2010 2013 2016

Brazil Russia

Potential and headline real GDP level

(index, potential GDP in 2000=100)

Headline

(WEO Oct 2013)

Headline

(latest)

Potential

(latest)

Potential

(WEO Oct 2013)

Growth in the large EMEs has been

fueled by a credit boom

0

10

20

30

40

50

60

70

80

90

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Brazil

Russia

Turkey

Credit to private non-financial sector

(percent of GDP)

In China credit boom has been particularly

dramatic

100

120

140

160

180

200

220

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Credit to private non-financial sector in China

(percent of GDP)

+80 percent of GDP

Even stronger than Latvia pre-crisis!

0

20

40

60

80

100

120

2003 2004 2005 2006 2007 2008 2009 2010 2011

+57 percent of GDP

Credit to private non-financial sector in Latvia

(percent of GDP)

Debt service has increased as well

10

12

14

16

18

20

22

2004 2006 2008 2010 2012 2014

Debt service ratio of non-financial private sector

(percent)

China

USA

Big question: What happens if credit

boom ends?

What happens with domestic demand growth?

NPLs?

Will financial sector remain healthy?

In 2007, we though that credit booms in

US and UK would end well.

100

110

120

130

140

150

160

170

180

190

200

1995 1997 1999 2001 2003 2005 2007 2009 2011 2013

UK

USA

Credit to private non-financial sector

(percent of GDP)

2. Resilience of CESEE

CESEE has been much less affected by global

financial turmoil

0

50

100

150

200

250

300

350

400

450

Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16

5-year CDS spreads

(basis points)

Developing Asia

CESEE

Latin America

CESEE—excl Turkey and Russia—has not

had a credit boom post 2008! Latv

ia

Slo

ven

ia

Hu

ng

ary

Est

on

ia

Lit

hu

an

ia

Bela

rus

Bu

lgari

a

Ro

man

ia

Cro

ati

a

Serb

ia

Ukra

ine

Ko

sovo

Mo

ldo

va

Alb

an

ia

Bo

snia

Slo

vakia

Cze

ch R

ep

.

Po

lan

d

Ru

ssia

-50

-40

-30

-20

-10

0

10

20

30

Change in claims on non-financial private sector, 2010-2014

(percent of GDP)

Post 2009, capital inflows have been low

14

-5

0

5

10

15

20

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Capital flows to CESEE*

(percent of GDP)

Other investments

Portfolio

Total

*excluding Russia and Turkey

Direct

3. Regional Differences

May be better not to look at CESEE as one

region

Large regional differences in growth

CIS in recession

Non-CIS is seeing moderate to fairly strong

growth

And inflation

Elevated in CIS

Low in non-CIS

15

0

2

4

6

8

10

12

14

16

18

20

2000 2003 2006 2009 2012 2015

-6

-4

-2

0

2

4

6

8

10

2000 2003 2006 2009 2012 2015

Growth and Inflation: Regional

Differences

3-year rolling average real GDP growth

(percent)

3-year rolling average CPI inflation

(percent)

CEE EU

CEE non-EU

CIS

CIS

CEE non-EU

CEE EU

Regional growth projections

GDP growth projections

(percent) 2015 2016

-10.0 - -5.0

-5.0 - 0.0

0.0 - 1.0

1.0 - 2.0

2.0 - 3.0

3.0 - 4.0

Note: Striped fill denotes CESEE country under IMF programs.

Almost all countries have recovered from

crisis

Greece Ukraine Croatia Cyprus Italy Portugal Slovenia Spain Serbia Latvia

Russia Hungary Bulgaria Romania

Austria Lithuania

France Bosnia and Herz.

Czech Rep. Montenegro

Estonia Germany

United Kingdom Ireland

Slovakia Belarus

Macedonia Albania

Moldova Poland

-30 -20 -10 0 10 20 30

GDP, 2015

(percent change since 2008)

Particularly in per capita terms

19 Greece Ukraine Croatia Cyprus Italy Portugal Slovenia Spain Serbia Latvia

Russia Hungary Bulgaria Romania

Austria Lithuania

France Bosnia and Herz.

Czech Rep. Montenegro

Estonia Germany

United Kingdom Ireland

Slovakia Belarus

Macedonia Albania

Moldova Poland

-30 -20 -10 0 10 20 30

GDP and GDP per capita, 2015

(percent change since 2008)

GDP per capita

Two main crisis legacies: high NPLs

20 20

0 5 10 15 20 25

Kosovo

Macedonia

Slovenia

Slovenia

Romania

Bosnia and Herz.

Bulgaria

Croatia

Montenegro

Serbia

Albania

NPLs 2008 change max

Non-performing loans

(latest available data, percent of total loans)

0.0 - 5.0

5.0 - 10.0

10.0 - 15.0

15.0 - 20.0

20.0 - 25.0

25.0 - 100.0

Below 5 percent

5-10 percent

10-15 percent

15-20 percent

20-25 percent

Above 25 percent

High public debt

21

Public debt

(percent of GDP)

21.4

51.1

10.8

75.3

28.6

20.4

40.6

37.1

73.3

44.8

40.4

38.8

53.3

45.5

40.9

37.8

69.9

76.7

89.3

81.8

94.4

-20 0 20 40 60 80 100

Kosovo Poland Estonia

Hungary Bulgaria

Russia Czech Rep. Macedonia

Albania Moldova

Belarus Lithuania Slovakia

Bosnia Romania

Latvia Montenegro

Serbia Croatia

Slovenia Ukraine

Change in public debt, 2007-15

(percent of GDP)

Public debt in 2015

(percent of GDP)

However, adjustment fatigue seems to

have set in.

22

0

1

2

3

4

5

6

7

8

Fall 2015 WEO

Fall 2014 WEO

Estimates of 2016 Fiscal Deficit by WEO vintage

(percent of GDP)

Estimates of 2016 deficit as in:

Thank you