Structural Implications of the Crisis

1. Structural Implications of the Crisis Indermit Gill for Workshop on The Geography of the Financial Crisis Warsaw, September 2009

2. Main Messages The worst phase of the global financial crisis seems to be ending, with money, equity and bond markets recovering But poverty and unemployment in Europe and Central Asia are increasing, while fiscal conditions deteriorate Central and Eastern Europe will leave the crisis with structures that are unsuited for a world of low growth and tight money

3. Industrial production has stopped falling Industrial production, percentage change (3m/3m, saar) World Developing OECD Source: World Bank, DEC Prospects Group.

4. Uptrend in all regions Industrial production, percentage change (saar) Middle-East & North Africa East Asia & Pacific South Asia Developing Europe & Central Asia Latin America Source: World Bank, DEC Prospects Group.

5. Commodity markets recovering too Index, 2000=100. Energy Metals Agriculture Source: World Bank, DEC Prospects Group, Commodities Team.

6. Lower interest rates for firms and governments Emerging-market bond spreads Corporate bonds (CEMBI Global) Sovereign bonds (EMBI Global) Before Lehman Brother Source: World Bank, DEC Prospects Group

7. Access to markets better Bond issuance by issuer type (2009 Q3 as of Aug. 25) $ billion

8. But countries in ECA vulnerable International bond issuance and syndicated bank lending Source: World Bank, DEC Prospects Group

9. Bank lending dropping Syndicated bank loans by borrower type (2009 Q3 as of Aug. 25) $ billion

10. FDI inflows falling FDI to 28 developing countries $ billion Source: World Bank, DEC Prospects Group

11. Weak prospects for capital flows Net private capital flows to developing countries $ billion percent Percent of GDP (right axis) Source: World Bank, DEC Prospects Group

12. ECA faces largest external financing needs in 2010 Source: World Bank, DEC Prospects Group

13. Income levels remain depressed Index, peak 2008=100 Oil producing countries Other MIC's and HIC's (incl LAC's, Resource exporters, US, UK) Capital goods exporters Countries with large imbalances and/or affected via trade channels Source: World Bank, DEC Prospects Group

14. High growth may have been unusual Low- and middle-income High-income Industrial production, monthly growth rates Source: DEC Prospects Group

15. 11.3 million were registered as unemployed in June 2009, up from 8.4 million in June 2008 Fastest increases in Baltics, but all of EU-10 affected. Previous increases in unemployment in Poland, Czech, Russia and Turkey show that high levels can persist for years Unemployment still rising

16. Household loans overdue

17. Social protection spending skewed towards pensions

18. Crisis not over. Central and Eastern Europe faces a slow recovery Tight money ahead. Post-crisis growth will be lower, and fiscal deficits higher New structures needed. Old structures increasingly obsolete Use structural funds well. Get the most out of the 30 billion euro of cohesion, structural, agricultural transfers Conclusions