Eu10slides

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Eu10slides

  1. 1. Bucharest, Warsaw, Zagreb May 21, 2009 EU10 Regular Economic Report May 200 9
  2. 2. <ul><li>What we have seen </li></ul><ul><ul><li>Trade and financial shocks have led to a severe slump and job losses … </li></ul></ul><ul><ul><li>… although there are tentative signs of financial market stabilization </li></ul></ul><ul><li>What we can expect </li></ul><ul><ul><li>Recession in 2009 and stagnation in 2010 </li></ul></ul><ul><ul><li>Impact of the crisis differs greatly depending on degree of market integration and magnitude of macro imbalances </li></ul></ul><ul><li>What should be done </li></ul><ul><ul><li>Policy responses differ across countries </li></ul></ul><ul><ul><li>Fiscal policy options limited, financial policy measures necessary, and social and structural policy actions priority </li></ul></ul>Overview
  3. 3. What we have seen
  4. 4. What we have seen Economy - sharp slowdown Real GDP growth in EU10 in 3Q 2008 to 1Q 2009, (% change, yoy, sa) Source: Eurostat, World Bank Staff calculations. Q1 2009 data is preliminary.
  5. 5. What we have seen Trade – collapse in exports EU and HIC Imports and EU10 and LMIC Exports (3mma, %change, yoy, sa) Source: Datastream Thomson and World Bank.
  6. 6. What we have seen Trade – collapse in industrial production Volume Index of Industrial Production (% change, yoy, wda) Source: Eurostat, Staff calculations
  7. 7. What we have seen Trade - collapse in investment Contribution to GDP Growth 1Q-4Q 2008 (percentage points) Source: Eurostat, Statistical Offices, World Bank Staff calculations
  8. 8. What we have seen Finance – slowdown in gross capital flows Gross capital flows to emerging markets and emerging EU10 countries, USD, bln per quarter Source: World Bank Global Prospect Group, World Bank Staff calculations.
  9. 9. What we have seen Finance – slowdown in credit growth Credit to private sector, yoy, percent Source: European Central Bank, World Bank Staff calculations
  10. 10. What we have seen Finance – stabilizing stock markets Stock Market Indices (January 2008=100) Source: Reuters, World Bank Staff Calculations
  11. 11. What we have seen Finance – easing of interbank rates Interbank rates for selected EU10 countries (%) Source: World Bank Global Prospect Group, World Bank Staff calculations.
  12. 12. What we have seen Finance – easing of spreads Emerging Market Bond Index Global spreads (basis points) 5-Year Credit Default Swaps (%) Source: JP Morgan. World Bank Global Prospect Group, World Bank Staff calculations. Source: World Bank Global Prospect Group, World Bank Staff calculations.
  13. 13. What we have seen Finance – easing of CDS of parent banks European Banks’ 5-year CDS (bps) Source: Bloomberg, Datastream, World Bank Staff calculations.
  14. 14. What we have seen Labor – slowdown in employment growth Employment growth rate, yoy Source: Eurostat, Statistical Offices, World Bank Staff calculations
  15. 15. What we have seen Labor – increase in job losses Net job creation as percentage of the labor force Source: European Restructuring Monitor
  16. 16. What we have seen Labor – slowdown in wage growth Real wage growth (% change, yoy) Source: Statistical Offices, World Bank Staff calculations
  17. 17. What we can expect
  18. 18. What we can expect Economy – recession, stagnation GDP growth in EU10, (% change, yoy) Source: IMF, World Economic Outlook, EC Spring Forecast May 2009, World Bank Staff calculations.
  19. 19. What we can expect Economy – Q1 2009 versus 2009 forecast Q1 2009 actual versus IMF 2009 forecast, (% change, yoy) Source: IMF, World Economic Outlook, Central Statistical Offices, World Bank Staff calculations.
  20. 20. What we can expect Economy – Sentiment Indicator Economic Sentiment Indicator (long-term mean = 100) Source: European Commission
  21. 21. What we can expect Economy – downturn varies in size IMF’s forecast of real GDP growth in EU10 in 2009 and 2010, (% change, yoy) Source: IMF, World Economic Outlook, April 2009
  22. 22. What we can expect Economy – downturn depends on export markets Trade weighted growth of exports markets Source: WIIW calculations; IMF for GDP of trading partners. -0,139 -4,022 Slovenia -0,177 -3,929 Slovak Republic -0,157 -4,074 Romania -0,208 -4,494 Poland -0,176 -5,656 Lithuania -0,550 -6,056 Latvia -0,161 -4,216 Hungary -0,109 -4,014 Czech Republic -0,264 -4,974 Estonia 0,039 -3,686 Bulgaria 2010 2009
  23. 23. What we can expect Economy – expected downturn increases with macro imbalances Cumulative output drop in 2009-10 vs. current account balance in 2008 Source: IMF, World Bank Staff calculations
  24. 24. What we can expect Economy – expected downturn increases with macro imbalances Cumulative output drop in 2009-10 vs. inflation rate in 2008 Source: IMF, World Bank Staff calculations
  25. 25. What we can expect Economy – expected downturn increases with macro imbalances Cum. output drop in 2009-10 vs. bank-related capital inflows in 2Q 07-1Q 08 Source: IMF, World Bank, DEC PG, World Bank Staff calculations
  26. 26. What we can expect Trade – decline in current account deficits Forecasts of current account balance (percent of GDP) Source: EC Spring Forecasts, May 2009, World Bank Staff calculations
  27. 27. What we can expect Finance – capital flows don’t recover fully Total capital inflows during past capital account crises (% of GDP) Source: World Bank Staff
  28. 28. What we can expect Finance – markets differentiate across country Country-Specific Components in New EU Member States Source: World Bank Staff
  29. 29. What we can expect Labor – increase in unemployment EU 10 Unemployment rates (% of the Labor Force) Source: EC Spring Forecasts, May 2009, World Bank Staff calculations
  30. 30. What we can expect Labor – unemployment increase varies in size Forecasts of unemployment rates in EU10 countries, (percent of labor force) Source: EC Spring Forecasts, May 2009, World Bank Staff calculations
  31. 31. What we can expect Labor – rise in unemployment linked to drop in output Cum. output drop in 2009-10 vs. change in unemployment rate in 2009-10 Source: EC Spring Forecasts, May 2009, World Bank Staff calculations
  32. 32. What should be done
  33. 33. What should be done Fiscal policy – stimulus spending possible in some economies G20 Fiscal Stimulus Packages, 2008-2010, % of GDP Source: World Bank, IMF, Staff Calculations
  34. 34. What should be done Fiscal policy – stimulus spending not an option for most EU10 countries EU10 countries deficit forecasts (% of GDP) Fiscal balance 2009 - Convergence Program vs. Forecast (% of GDP) Source: EC Spring Forecasts, May 2009, World Bank Staff calculations Source: EC, Eurostat, Staff calculations
  35. 35. What should be done Fiscal policy – stimulus spending not an option for most EU10 countries Ongoing procedures under article 104 of the Treaty (Excessive Deficit Procedure)
  36. 36. What should be done Monetary policy – cautious easing to support demand Consumer Price Inflation, (annual % change, median) Policy interest rates (percent) Source: DEC PG, World Bank Staff calculations Source: Central Banks
  37. 37. What should be done Monetary policy – mindful about exchange rate volatility Exchange rates vs. Euro Source: ECB
  38. 38. What should be done Monetary policy – households are exposed to exchange rate risks Foreign Currency Denominated Loans 2008, percent of bank loans to households Source: National Central Banks
  39. 39. What should be done Finanical policy – restoring market confidence in home and host countries Foreign bank claims of home and on host countries (end 2007), % of GDP Source: BIS, World Bank Staff calculations.
  40. 40. What should be done Finanical policy – strengthening home-host country coordination Geographic Breakdown of Foreign Claims in the Banking Sector Source: BIS, World Bank Staff calculations.
  41. 41. What should be done Labor policy – keep labor market linkages open Migrant Households Tend to Pay Higher Net Taxes than Households with no Migrants Workers’ Remittances as % of GDP in 2007 Source: World Bank Staff calculations based on 2006 EU-SILC data
  42. 42. THANK YOU!

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