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World Bank EU10 Regular Economic Report Safeguarding Recovery Brussels, 16 July 2010

World Bank EU10 Regular Economic Report Safeguarding Recovery Brussels, 16 July 2010. MESSAGES. Return to growth but volatile financial markets, fiscal pressures, and high unemployment cast shadow on future prospects

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World Bank EU10 Regular Economic Report Safeguarding Recovery Brussels, 16 July 2010

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  1. World Bank EU10 Regular Economic Report Safeguarding Recovery Brussels, 16 July 2010

  2. MESSAGES Return to growth but volatile financial markets, fiscal pressures, and high unemployment cast shadow on future prospects Bolstering financial sector stability, shoring up fiscal sustainability, and tackling structural unemployment are essential for safeguarding the recovery

  3. Return to Growth

  4. Back in positive territory … Year-on-year GDP growth in EU10 and EU15, percent Source: Eurostat, World Bank staff calculations

  5. … helped by the base effect … Quarter-on-quarter GDP growth in EU10 and EU15, percent Source: Eurostat, World Bank staff calculations

  6. … with continued contraction in some countries Year-on-year GDP growth in EU10 and EU15, percent Source: Eurostat, World Bank staff calculations

  7. Recovery will be slow … Forecasted GDP growth rates, percent Source: Convergence Program Updates 2010, EC Spring Forecast 2010, World Bank

  8. … synchronized with EU15 … EU10 and EU15 GDP growth, exports growth, credit growth, percent Source: Eurostat, World Bank staff calculations

  9. … reliant on net exports in 2010… Forecasted contribution of net exports and domestic demand to GDP growth in EU10 and EU15 countries, percent Source: EC Ameco database, World Bank staff calculations

  10. … and public investment in 2010 and 2011 … Forecasted growth of consumption and investment in EU10 and EU15 countries, percent Source: EC Ameco database, World Bank staff calculations

  11. … and varied within EU10 Forecasted GDP growth rates for EU10 countries, percent Source: World Bank

  12. Volatile Financial Markets

  13. Risk appetite receding … Asset class performance, percent change Source: Bloomberg, Reuters, World Bank staff calculations Notes: Decrease indicates deterioration

  14. … and capital flows stalling in May … Capital inflows to global emerging markets, USD billions Source: DECPG, World Bank staff calculations

  15. … and negative credit growth to enterprises in most countries Credit growth from December 2009 to April 2010, percent Source: ECB, World Bank staff calculations

  16. Fiscal Pressures

  17. As financial markets focus on sovereign debt … Source: Eurostat, World Bank staff calculations

  18. … governments reduce fiscal deficits gradually … Forecasted general government overall and primary deficits in EU10 and EU15 Source: Convergence and Stability Program Updates from January/February 2010, EC Spring Forecast 2010, World Bank staff calculations

  19. … to keep public debt sustainable Forecasted general government debt in EU10 countries and EU15 Source: Convergence and Stability Program Updates from January/February 2010, EC Spring Forecast 2010, World Bank staff calculations

  20. High Unemployment

  21. Unemployment remains high … Forecasted unemployment rates for EU10 countries, percent Source: EC Ameco database, World Bank staff calculations

  22. … especially for young and less educated … Change in unemployment rate by subgroup, percent Source: Eurostat, World Bank staff calculations

  23. … and in Latvia, Estonia, Lithuania & Slovakia … Forecasted unemployment rates, percent Source: EC Ameco database, World Bank staff calculations

  24. … with employment falling more than output in few countries … Change in output vs. change in employment, percent Source: Eurostat, World Bank staff calculations

  25. … even though wages are moderating in most countries Total nominal hourly labor costs, % change, yoy, working day adjusted Source: Eurostat, World Bank staff calculations.

  26. Safeguarding Recovery

  27. Answering the 1.7% question … Potential growth in 2007 and 2011 by EU member country Source: European Commission Ameco database, World Bank staff calculations.

  28. … requires a stable European banking system with stable exposure to EU10 region … European Banks’ 5-year CDS (bps) Source: Bloomberg, Datastream, World Bank staff calculations

  29. … and lower expenditures and higher revenues … Composition of fiscal deficit reduction from 2009 to 2011, percent of GDP Source: Convergence and Stability Program Updates from January/February 2010, EC Spring Forecast 2010, World Bank staff calculations

  30. … to keep borrowing costs low … Yield curves, percent Source: Bloomberg, World Bank staff calculations

  31. … as well as more people working longer… Employment rate of 15-64 year-olds, EU27=100 Source: Eurostat, World Bank staff calculations.

  32. … in productive jobs Change in employment by a skill level from 1Q 08 to 1Q 10, percent Source: Eurostat, World Bank staff calculations.

  33. … also to get ready for the euro area Compliance with convergence criteria, March to May 2010 Source: Poland Ministry of Finance, World Bank staff calculations.

  34. THANK YOU For more information visit: www.worldbank.org/eca/eu10rer krichter@worldbank.org

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