Cautious upturn in CESEE: haunted by the spectre of uncertainty

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1 Wiener Institut für Internationale Wirtschaftsvergleiche The Vienna Institute for International Economic Studies wiiw.ac.at Press conference, 16 March 217 New wiiw forecast for Central, East and Southeast Europe, Cautious upturn in CESEE: haunted by the spectre of uncertainty Mario Holzner

2 Positive international environment: Euro area growth forecast 1.7% ( ) International GDP and import trends Real GDP growth in % Real growth of goods and services imports, in % 3 USA Germany Italy 9 USA Germany Italy Note: Dashed lines are forecasts. Source: EC Autumn Forecast 216 and Winter Forecast

3 Economic agents mood is good: EU sentiment indicator above long-term average EU Economic Sentiment Indicator tracer monthly change Aug-16 upswing Sep-16 Jul-15 Jan-15 Feb-15 Apr-16 May-16 Mar-15Apr-15 Jun-16 May-15 Mar-16 Jul-16 Jun-15 Feb-16 contraction Aug-15 Oct-16 Jan-16 Sep-15 Nov-16 Oct-15 Nov-15 expansion Dec-15 Jan-17 downswing Dec ESI (1 = long-run average) Source: Eurostat. 3

4 but heightened uncertainties following Brexit, Trump News-based Economic Policy Uncertainty Index World USA European refugee crisis, Russia begins air strikes against ISIL Chinese stock market meltdown, outbreak of the Zika virus Brexit referendum US presidential elections 1 5 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Source: Economic Policy Uncertainty. 4

5 Growth stabilised in positive territory: except in Belarus (Turkey) Quarterly real GDP growth, change in % against preceding year BG CZ HU EE HR LT 8 PL RO SK 15 LV SI Q 1 1Q 11 1Q 12 1Q 13 1Q 14 1Q 15 1Q 16 4Q 16 1Q 1 1Q 11 1Q 12 1Q 13 1Q 14 1Q 15 1Q 16 4Q 16 AL BA ME BY KZ RU 15 MK RS XK 15 UA TR Q 1 1Q 11 1Q 12 1Q 13 1Q 14 1Q 15 1Q 16 4Q 16 1Q 1 1Q 11 1Q 12 1Q 13 1Q 14 1Q 15 1Q 16 4Q 16 Source: wiiw Monthly Database incorporating national and Eurostat statistics. 5

6 CESEE GDP growth forecasts of around 3%: with a slightly upward trend Real GDP growth forecast and revisions Forecast, % Revisions, pp BG HR CZ EE HU EU-CEE LV LT PL RO SK SI AL BA WB XK MK ME RS Turkey TR BY CIS +UA KZ RU UA Note: Current forecast and revisions relative to the wiiw autumn forecast 216. Colour scale reflects variation from the minimum (red) to the maximum (green) values. Source: wiiw forecast. 6

7 After the 216 investment slump due to EU transfer cycle: EU-CEE can expect investment recovery Gross fixed capital formation (GFCF) by asset types in EU-CEE real change in % against preceding year, seasonally and calendar adjusted 2 15 Total fixed assets Dwellings Other buildings and structures Machinery and equipment and weapons systems Q 1 1Q 11 1Q 12 1Q 13 1Q 14 1Q 15 1Q 16 4Q 16 Note: Arithmetic average over 8 EU-CEE countries: BG, CZ, EE, LV, LT, PL, SK, SI. Source: Eurostat. 7

8 EU-CEE: lasting consumption growth expected Retail trade turnover in EU-CEE, real change in % against preceding year, seasonally and calendar adjusted data, 4 quarters moving average Retail trade except of motor vehicles and motorcycles Food, beverages and tobacco Information and communication equipment; other household equipment (except textiles); cultural and recreation goods, etc. in specialised stores Q 1 4Q 11 4Q 12 4Q 13 4Q 14 4Q 15 4Q 16 Note: Arithmetic average over countries - for the information and household equipment sub-group only data for 7 countries (BG, CZ, EE, HU, LT, PL, RO) were available. Source: Eurostat. 8

9 Labour markets improving: especially in Western Balkans Employed persons, th. average, LFS, based on 1Q 21 = 1, 4 quarters moving average 13 EU-CEE WB-4 Turkey CIS-2 + UA Q 1 4Q 11 4Q 12 4Q 13 4Q 14 4Q 15 4Q 16 Unemployed persons, th. average, LFS, based on 1Q 21 = 1, 4 quarters moving average EU-CEE WB-4 Turkey CIS-2 + UA 4Q 1 4Q 11 4Q 12 4Q 13 4Q 14 4Q 15 4Q 16 Note: WB-4 comprises data for BA (employees registered), MK, ME, RS. CIS-2 includes RU and KZ. Source: wiiw Monthly Database incorporating national and Eurostat statistics. 9

10 Tightening labour markets conducive to wage increases Average monthly gross wages total and in industry, real change in % against preceding year 8 6 Wages total EU-CEE (lhs) WB-5 CIS-2 + UA Wages in industry EU-CEE (lhs) WB-5 CIS-2 + UA Q 1 1Q 11 1Q 12 1Q 13 1Q 14 1Q 15 1Q 16 4Q 16 Note: Arithmetic average over country groups. WB-5 comprises data for AL, BA, MK, ME, RS. CIS-2 includes RU and KZ. 1 Source: wiiw Monthly Database incorporating national and Eurostat statistics.

11 Devaluations reduce ULCs only in CIS+UA ULC total and in industry, change in % against preceding year ULC total EU-CEE (lhs) WB-4 CIS-2 + UA ULC in industy EU-CEE (lhs) WB-4 CIS-2 + UA ULC total and in industry ER adjusted, change in % against preceding year Q 1 1Q 11 1Q 12 1Q 13 1Q 14 1Q 15 1Q 16 4Q 16 ULC total EU-CEE (lhs) WB-4 CIS-2 + UA ULC in industry EU-CEE (lhs) WB-4 CIS-2 + UA 1Q 1 1Q 11 1Q 12 1Q 13 1Q 14 1Q 15 1Q 16 4Q 16 Note: Arithmetic average over country groups. CIS-2 includes RU and KZ. WB-4 comprises data for AL, MK, ME, RS. Unit labour costs are defined as average gross wages per employee relative to labour productivity (ER adjusted: average gross wages in EUR). Source: wiiw Databases incorporating national and Eurostat statistics

12 but improvement in industry structure, reindustrialisation (especially in Visegrád economies) Industrial production, index 1Q 21 = 1, calendar adjusted but not seasonally adjusted data, 4 quarters moving average EU-CEE 18 Gross industrial production total Intermediates Capital goods Durable consumer goods 16 Non-durable consumer goods Q 11 1Q 12 1Q 13 1Q 14 1Q 15 1Q 16 4Q 16 WB-4 Gross industrial production total Intermediates Capital goods Durable consumer goods Non-durable consumer goods Q 11 1Q 12 1Q 13 1Q 14 1Q 15 1Q 16 4Q 16 Note: Arithmetic average over country groups. WB-4 comprises data for BA, MK, ME, RS. Source: wiiw Monthly Database incorporating national and Eurostat statistics. 12

13 Promising longer-term FDI trend for Western Balkans; SK & RO expect substantial automotive FDI FDI flows (BOP, liabilities) in % of GDP, 4 quarters moving average 9 EU-CEE WB-4 Turkey CIS-2 + UA Q 1 4Q 11 4Q 12 4Q 13 4Q 14 4Q 15 4Q 16 Note: Arithmetic average over country groups. WB-4 comprises data for AL, MK, RS, XK. CIS-2 includes RU and KZ. Source: wiiw Monthly Database incorporating national and Eurostat statistics. 13

14 Stagnant labour force but improved education structure: competitiveness fostered Labour force by education, thousand persons 2 High Medium Low 2 High Medium Low Q 1 EE 3Q 16 1Q 1 LV 3Q 16 1Q 13Q 16 LT 1Q 1 HR 3Q 16 1Q 13Q 16 1Q 13Q 16 MK SI Q 1 BG 3Q 16 1Q 1 CZ 3Q 16 1Q 1 HU 3Q 16 1Q 1 SK 3Q Q 1 PL 3Q 16 1Q 13Q 16 1Q 13Q 16 RO TR Note: Definition of education (ISCED). Low: less than primary, primary and lower secondary education. Medium: upper secondary and post-secondary non-tertiary education. High: tertiary education. Source: Eurostat. 14

15 GDP GROWTH FORECAST Romania Kosovo Albania Hungary Slovakia Macedonia Montenegro Bulgaria Poland Slovenia Croatia Bosnia and Herzegovina Serbia Lithuania Latvia Ukraine Czech Republic Estonia Turkey Kazakhstan Russia Belarus Forecast: wiiw (March 217). 15

16 An optimistic overall economic outlook: amid major global political uncertainties Cautious upturn in CESEE, surpassing 3% GDP growth by 219 driven by consumption and increasing investment in a largely supportive international economic environment competitiveness not endangered despite the rise in ULCs EU-CEE uncertainties: authoritarian tendencies, anti-eu populism, Brexit & transfers & migration, Trump & NATO & protectionism Western Balkans uncertainties: stability of EU carrot and US stick questioned - an opportunity for Russia and Turkey? CIS+UA uncertainties: oil price and geopolitical factors (Donbas) However, from a currently optimistic perspective, CESEE back on a convergence track, growth differential of 1.2 pp against euro area 16

17 Wiener Institut für Internationale Wirtschaftsvergleiche The Vienna Institute for International Economic Studies Thank you for your attention! You can visit us at: facebook.com/wiiw.economic.studies/ twitter.com/wiiw_news/ 17

18 Country codes AL Albania MK Macedonia BA Bosnia and Herzegovina PL Poland BG Bulgaria RO Romania CZ Czech Republic RS Serbia EE Estonia RU Russia HR Croatia SI Slovenia HU Hungary SK Slovakia KZ Kazakhstan TR Turkey LT Lithuania UA Ukraine LV Latvia XK Kosovo ME Montenegro CESEE CIS EU-CEE WB Central, East and Southeast Europe Commonwealth of Independent States European Union Central and Eastern Europe Western Balkans 18