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Economic challenges for Candidate and potential candidate countries

This conference explores effective support for enlargement by addressing the economic challenges faced by candidate and potential candidate countries. Topics include revenue levels, pre-crisis growth patterns, recent economic developments, and policy priorities.

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Economic challenges for Candidate and potential candidate countries

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  1. Economic challengesfor Candidate and potential candidate countries Conference on Effective support for Enlargement, Brussels, 19 October 2009 Christophe Pavret de La Rochefordière, European Commission – DG ECFIN

  2. Revenue levels

  3. Pre-crisis growthpatterns Key features of recent economic developments (pre-crisis, 2000-2008) • High growth average 5-7% end period • Growth boosted by high credit growth • High external imbalances, large trade and current account deficits • High reliance on capital inflows, both in the form of FDI and external debt (mainly private). • End of period: fiscal policies were relaxed, in a number of countries fiscal expansion. • Western Balkans: Low investment in tradables.

  4. Crisis main features (1) • External trade severely affected, imports sharp adjustment. Double digit downturn • Industrial production down • Current account imbalances moderate • But: FDI going sharply down as well • Resilient banking sector: only one potentially insolvent bank (Montenegro) that had to be rescued

  5. Crisis main features (2) 6. Credit growth cut down. • But… - no financial meltdown - no « sudden stop » in capital inflows • Fiscal shock, fiscal revenue sharply affected, need for budget rebalancing in most countries. Rising deficits.

  6. Growth – Candidates

  7. Growth – Potential candidates

  8. FDICandidates

  9. FDIPotential candidates

  10. Budget deficitCandidates

  11. Budget deficitPotential candidates

  12. Bank depositsGrowth

  13. Bank creditsGrowth

  14. Banks well capitalised

  15. UnemploymentCandidates

  16. UnemploymentPotential candidates

  17. Risks • Feedback loop from the real to the financial sector. • Difficult containment of fiscal shock.IMF programmes in Serbia – Bosnia + EU and WB assistance to help address this. • Lower capital inflows leading to lower investment and lower growth

  18. Increasing banking risks

  19. Challenges • Adjusting the growth model, adopting a more sustainable and balanced growth (including by developing manufacturing and exports) • Financing external imbalances • Attracting investment • Lowering unemployment

  20. Policy priorities Two main policy areas where sustained action crucial : • Ensuring fiscal sustainability • Deepening structural reforms

  21. thankyou christophe.rochefordiere@ec.europa.eu

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