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Vladimir Gligorov

Economic Outlook and Challenges for the Region. Vladimir Gligorov. Real Economy. GDP and industrial production growth still strong, but risks to decline significant Risks to yet another interrupted industrialization Labour market problems great External balance at risk

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Vladimir Gligorov

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  1. Economic Outlook and Challenges for the Region Vladimir Gligorov

  2. Real Economy • GDP and industrial production growth still strong, but risks to decline significant • Risks to yet another interrupted industrialization • Labour market problems great • External balance at risk • Relative prices to adjust • Inflation a problem if currencies depreciate

  3. Key Risks • Decline of availability of foreign credit and investment • Export decline

  4. 2006 2007 2008 2009 2010 Forecast Croatia 4.8 5.6 3.5 3 4 Macedonia 4.0 5.1 5 5 5 Turkey 6.9 4.6 2.0 2 4 Albania 5.5 5.6 5.8 6.0 6.1 Bosnia & Herzegovina 6.7 6.0 4.0 4 5 Montenegro 8.6 7.0 5 5 5 Serbia 5.7 7.5 4 4 4 Outlook for the SEE countriesGDP, real change in % against previous year Source: wiiw (Oct 2008); forecasts: wiiw

  5. GDP growth rates, 2005-2010year-on-year, growth in % Source: wiiw Annual Database incorporating national statistics.

  6. Industry growth rates, 2005-2010year-on-year, growth in % Source: wiiw Annual Database incorporating national statistics.

  7. Industry & GDP growth differential, 2005-2010year-on-year, growth difference in percentage points Source: wiiw Annual Database incorporating national statistics.

  8. Employment, 2000-2007LFS - employed persons, th, avg., annual change in % Remark: AL, BA registration data. Source: wiiw Annual Database incorporating national statistics.

  9. Unemployment, 2000-2007LFS - unemployed persons, th, avg., annual change in % Remark: AL, BA registration data. Source: wiiw Annual Database incorporating national statistics.

  10. Final consumption expenditure Gross capital formation Net exports* GDP, right scale Drivers of GDP growth, 2000-2010contributions of main components to GDP growth, in % Note: *Net exports including change in stocks and statistical discrepancies. Source: wiiw Annual Database incorporating national statistics, forecasts: wiiw.

  11. Real appreciation*, 2004-2008EUR per NCU, PPI-deflated, in % against January 2004 * Increasing line indicates appreciation. Source: wiiw Monthly Database.

  12. Serbia: Exchange rates, consumer prices and wages 2004-2008, year-on-year growth in % * Increasing line indicates appreciation. Source: wiiw Monthly Database.

  13. Serbia: Exchange rates, consumer prices and wages, 2004-2008year-on-year growth in % Croatia: Exchange rates, consumer prices and wages, 2004-2008year-on-year growth in % * Positive values indicate real appreciation. Source: wiiw Database incorporating national statistics.

  14. Slovenia: Exchange rates, consumer prices and wages, 2004-2008 year-on-year growth in % Macedonia: Exchange rates, consumer prices and wages, 2004-2008 year-on-year growth in % * Positive values indicate real appreciation. Source: wiiw Database incorporating national statistics.

  15. Bulgaria: Exchange rates, consumer prices and wages, 2004-2008 year-on-year growth in % Romania: Exchange rates, consumer prices and wages, 2004-2008 year-on-year growth in % * Positive values indicate real appreciation. Source: wiiw Database incorporating national statistics.

  16. Exports and FDI Exports growing after year 2000 FDI growing after 2000 Similar to early experience of the Central European countries

  17. Figure 4 Trade deficit and current account, 2002-2007 in % of GDP Source: wiiw Annual Database incorporating national statistics.

  18. Exports in NMS and SEE, 1990-20061990=100 NMS-5: CZ, HU, PL, SK, SI

  19. Exports in NMS and SEE, 2000-20062000=100 NMS-5: CZ, HU, PL, SK, SI

  20. FDI stock, per capita, in NMS and SEEC, 1998-2006, EUR NMS-5: CZ, HU, PL, SK, SI SEEC-6: HR, MK, RS, ME AL, BA

  21. FDI stock, per capita, in NMS and SEEC, 1998-2006, EUR NMS-5: CZ, HU, PL, SK, SI

  22. Trade specialization Mostly low skilled and labour intensive goods are exported to the EU Not necessarily reflecting the human capital endowment in the Balkan economies

  23. Technology-driven industries, as % of total manufacturing exports to the EU NMS-5: CZ, HU, PL, SK, SI

  24. Labour-intensive industries, as % of total manufacturing exports to the EU NMS-5: CZ, HU, PL, SK, SI

  25. Low-skill industries,as % of total manufacturing exports to the EU NMS-5: CZ, HU, PL, SK, SI

  26. Financial Challanges • High demand of foreign capital • Banking sector problems

  27. Summary statistics of the variables, 2003

  28. EPL index, employment, unemployment in the SEE and peer countries (1) - employment rate, (2) - unemployment rate, in per cent respectively. Sources: see above.

  29. Correlations among the variables employed

  30. Male working - age population Dependent variable: employment rate coeff. (s.e.) coeff. (s.e.) EPL – regular 1.7980 (1.2803) 1.6592 (1.2800) EPL - temporary - 0.5072 (1.0239) 0.2148 (1.1719) EPL – coll ective - 0.9441 (1.0780) - 0.5996 (1.0182) rule of law 3.1313 (2.2130) ** ** - 5.2852 (2.4698) - 6.2409 (2.6136) EU - 15 *** - 15.3866 (3.0695) NMS *** - 12.6224 (3.7339) *** *** - 23.2276 (3.9131) - 18.5651 (5.3708) SEE *** *** 78.9444 (2.9346) 72.8433 (4.9864) C onstant Adj. R² 0.70 0.71 Dependent variable: unemployment rate coeff. (s.e.) coeff. (s.e.) coeff. (s.e.) EPL – regular - 0.6081 (0.8619) - 0.5562 (0.8583) 0.0875 (0.7242) * - 1.4286 (0.8508) EP L - temporary - 0.7577 (0.8291) - 1.0276 (0.9678) * 1.5911 (0.8240) EPL – collective 1.2984 (1.0022) 1.1696 (1.0057) rule of law - 1.1703 (1.5780) - 1.8565 (1.1815) EU - 15 1.2160 (1.4939) 1.5732 (1.6677) * 4.4879 (2.5878) NMS 3.4547 (3.0890) *** *** ** 15.4469 (4.3080) 13.7042 (4.7399) 11.5723 (4.9150) SEE * 6.5953 (3.2859) Constant 3.9852 (2.6427) 6.2655 (4.1674) Adj. R² 0.47 0.46 0.50 Regression results: male employment and unemployment Note: ***, **, * denote significance at 1%, 5%, 10% respectively. Robust standard errors.

  31. Regression results: female employment and unemployment

  32. Difference in average annual labour productivity growth and real wage growth

  33. Albania, 2004-2006 Difference in average annual labour productivity growth and real wage growth, ctd. Croatia, 2004-2006 Notes: Albania: Hotels and Restaurants (H) not included in Other services.

  34. Macedonia, 2004-2006 ctd. Montenegro, 2004-2006 Serbia, 2004-2006

  35. Cumulative responses to one unit shocks

  36. Risk factors and sustainability issues, by country

  37. Predicted effects of a change in EPL on male unemployment

  38. Predicted effects of a change in EPL on female employment

  39. SEE EU accession forecast SAA Negotiations EU Euro Croatia 2005 2005 2011 2013 Macedonia 2004 2008 2013 2015 Turkey . 2005 2015 - 2020 after 2020 Albania 2006 2009 by 2015 by 2017 Bosnia and 2008 2009 by 2015 by 2017 Herzegovina Kosovo 2009 2011 after 2015 since 2002 Montenegro 2007 2009 by 2015 since 2002 Serbia 2008 2009 after 2015 after 2017

  40. Medium-Term Economic Outlook for the SEE countries - conclusion • Growth dip 2008 & 2009, growth increase 2010 • Growth driver: domestic demand (remittances & credit boom) • Reindustrialization & employment/export increase • Stable competitive performance (except TR & RS) • Weak net export position • Certain impact of global growth slowdown • Serbia’s unbalanced growth path regional risk • EU accession prospects improving (except TR)

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