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South East Europe Regional Economic Report (SEE RER) No. 2 Poverty Reduction and Economic Management (PREM) Europe and Central Asia (ECA) Region. The World Bank June 5, 2012. Outline. SEE6: DEVELOPMENTS, OUTLOOK, CHALLENGES TOWARD ‘GOLDEN GROWTH’ IN SEE6.

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The world bank june 5 2012

South East Europe Regional Economic Report (SEE RER) No. 2Poverty Reduction and Economic Management (PREM)Europe and Central Asia (ECA) Region

The World Bank

June 5, 2012




I see6 developments outlook challenges global context


The world still faces several challenges.

higher oil prices,

reduced capital inflows,

high-income country fiscal and banking-sector consolidation

Most developing economies have fully recovered from the crisis.

But second half of 2011 saw slowdown generating major uncertainty for global economy going forward with possible further contagion.

Early 2012 signals positive, but turmoil in May

Risk of intensification of the Greek crisis and wider contagion

Recent developments in see6

  • In contrast to many developing countries, SEE6 show a sluggish real output recovery

  • Significant external adjustment

  • But rise in debt, especially public debt

  • Labor market – a significant problem

  • Credit market – improving but slowly

  • Poverty reduction: sluggish

  • Unexploited potential: exports

The world bank june 5 2012
SEE6 Real Output Recovery (20018 real GDP index=100) 2012ALB, KOS, MKD well underwayBIH, MNE, SRB lagging. Why?

It s partly investment except in mkd and kos
It’s partly investment… 2012Except in MKD and KOS

But consumption and exports are weak as well
But consumption and exports are weak as well 2012

Exports, 2008=100

Consumption, 2008=100

See6 region has shifted from trade led to domestic demand led growth but demand remains sluggish
SEE6 region has shifted from trade-led to domestic-demand-led growth, but demand remains sluggish…

A temporary external relief 5 year spreads of major parent banks basis points and vienna 2 0
A (temporary?) external relief: energy prices5 year spreads of major parent banks (basis points) and Vienna 2.0

But credit growth has not nominal y o y growth
…but energy pricescredit growth has not(nominal y-o-y growth)

Changes in unemployment rate are worrisome percentage points 2011 2008
Changes in unemployment rate are worrisome energy prices(percentage points, 2011/2008)

Levels are high especially in kos mkd bih unemployment rates
Levels are high especially in KOS, MKD, BIH energy prices(unemployment rates)

The world bank june 5 2012
A real worry: Specter of Jobless Growth energy prices(Change in realGDPandemploymentinSEE6 (left) and MKD (quarterly) in 2011)

Outlook for see6 global outlook bottom will come in 2012 growth weak thereafter

OUTLOOK FOR SEE6 and even food GLOBAL OUTLOOK--Bottom will come in 2012, growth weak thereafter

Key policy challenges in 2012 13 fiscal and public debt

Key policy challenges in 2012-13: Fiscal and Public Debt recovering to 2.6% in 2013

Slower growth in 2012

Revenue underperformance

Public debt level and dynamics MNE, SERB, ALB

Wage bill and pensions (esp. BIH)

Financial discipline and public sector arrears (MNE, ALB, MKD)

Elections in SERB, MNE (2012) and ALB, MKD (2013)

Special fiscal issues arrears and guarantees

Special Fiscal issues: Arrears and Guarantees recovering to 2.6% in 2013

Arrears emerging in SEE6

Private sector (MNE, ALB, MKD)

Public sector (ALB, MKD); Municipal (MNE)

Combination of weakness in revenue administration, control over municipal finances, commitment controls, credit tightness

State guarantees--important in some countries (e.g., MNE, SRB)

Ii reasons for optimism toward golden growth
II. Reasons for optimism: Toward “golden growth” 100)

  • SEE6 countries are becoming more integrated with Western Europe and the world

  • SEE6 countries substantially increased their external trade and trade sophistication

  • European “convergence machine”—reduction in income per capita gap with Western Europe – is available to SEE6, but with structural reforms

  • But aging and shrinking workforce a major challenge

  • Taking advantage of trade and financial flows

  • SEE6 catching up but limited innovation, R&D

  • Reforming labor and government—key challenges

In sum and the policy agenda
In Sum and the Policy Agenda 100)

  • 2012 – Difficult year; risks of contagion

  • Short-term challenges: Fiscal, Financial, and Social

    • Public debt, arrears and guarantees, financial – credit market, unemployment and poverty

  • Long-term challenges: Reforming labor and public sectors

  • SEE6 reforms anchored in the European future