Wiener Institut für

Internationale

Wirtschaftsvergleiche

The Vienna Institute for

International Economic

Studies

wiiw.ac.at

Press conference, 9 November 2017

New wiiw forecast for Central, East and Southeast Europe, 2017-2019

CESEE Region Back on Track to Convergence

Peter Havlik

International GDP, real growth in %

The global outlook has improved and the economic

recovery is gaining strength in Europe as well …

2

3

4

USA DE IT AT

2Note: Dashed lines are forecasts.

Source: WEO (IMF), October 2017.

-4

-3

-2

-1

0

1

2

2012 2013 2014 2015 2016 2017 2018

Economic Sentiment Indicator (100 = long-run average)

Both economic developments and investors’ sentiments

are apparently decoupled from politics …

110

115

120

EU EU-CEE WB-3 TR

3Note: WB-3 comprises MK, ME and RS.

Source: Yahoo! Finance, Eurostat.

80

85

90

95

100

105

110

Ja

n-1

5

Fe

b-1

5

Ma

r-1

5

Ap

r-1

5

Ma

y-1

5

Ju

n-1

5

Ju

l-1

5

Au

g-1

5

Se

p-1

5

Oct-

15

No

v-1

5

De

c-1

5

Ja

n-1

6

Fe

b-1

6

Ma

r-1

6

Ap

r-1

6

Ma

y-1

6

Ju

n-1

6

Ju

l-1

6

Au

g-1

6

Se

p-1

6

Oct-

16

No

v-1

6

De

c-1

6

Ja

n-1

7

Fe

b-1

7

Ma

r-1

7

Ap

r-1

7

Ma

y-1

7

Ju

n-1

7

Ju

l-1

7

Au

g-1

7

Se

p-1

7

Quarterly real GDP growth, change in % against preceding year

EU-CEE enjoy robust growth, Western Balkans and Turkey

uneven; recovery in the CIS and Ukraine is weaker

-5

0

5

10

15BG CZ HUPL RO SK

-5

0

5

10

15EE HR LTLV SI EA-19

4Source: wiiw Monthly Database incorporating national and Eurostat statistics.

-20

-15

-10

4Q 08 4Q 09 4Q 10 4Q 11 4Q 12 4Q 13 4Q 14 4Q 15 4Q 16 2Q 17-20

-15

-10

4Q 08 4Q 09 4Q 10 4Q 11 4Q 12 4Q 13 4Q 14 4Q 15 4Q 16 2Q 17

-20

-15

-10

-5

0

5

10

15

4Q 08 4Q 09 4Q 10 4Q 11 4Q 12 4Q 13 4Q 14 4Q 15 4Q 16 2Q 17

AL BA ME

MK RS XK

-20

-15

-10

-5

0

5

10

15

4Q 08 4Q 09 4Q 10 4Q 11 4Q 12 4Q 13 4Q 14 4Q 15 4Q 16 2Q 17

BY KZ RU UA TR

Employed persons, LFS, thousand, based on 1Q 2010 = 100, 4 quarters

moving averages

Rising employment in most EU-CEE (also in Western

Balkans), but not in LV, HR, RU, KZ and UA …

120

125

130BG CZ HU

PL RO SK 125

130 EE HR LT

LV SI

5Note: BA: employees registered.

Source: wiiw Monthly Database incorporating national and Eurostat statistics.

90

95

100

105

110

115

120

4Q 08

4Q 09

4Q 10

4Q 11

4Q 12

4Q 13

4Q 14

4Q 15

4Q 16

2Q 17

90

95

100

105

110

115

120

4Q 08

4Q 09

4Q 10

4Q 11

4Q 12

4Q 13

4Q 14

4Q 15

4Q 16

2Q 17

Unemployed persons, LFS, thousand, based on 1Q 2010 = 100, 4 quarters

moving averages

… mirrored by declining unemployment (but rates differ!)

140

160

180 BG CZ HU

PL RO SK

160

180 EE HR LT

LV SI

6Note: BA: unemployed registered.

Source: wiiw Monthly Database incorporating national and Eurostat statistics.

20

40

60

80

100

120

140

4Q 08

4Q 09

4Q 10

4Q 11

4Q 12

4Q 13

4Q 14

4Q 15

4Q 16

2Q 17

20

40

60

80

100

120

140

4Q 08

4Q 09

4Q 10

4Q 11

4Q 12

4Q 13

4Q 14

4Q 15

4Q 16

2Q 17

Average monthly real gross wages total, change in % against preceding year

Labour shortages hand in hand with rising wages …

15

20 BG CZ HU

PL RO SK

15

20 EE HR LT

LV SI

7Source: wiiw Monthly Database incorporating national and Eurostat statistics.

-10

-5

0

5

10

1Q 10

1Q 11

1Q 12

1Q 13

1Q 14

1Q 15

1Q 16

1Q 17

-10

-5

0

5

10

1Q 10

1Q 11

1Q 12

1Q 13

1Q 14

1Q 15

1Q 16

1Q 17

Average monthly gross wages, EUR (ER)

EU-CEE gross wages range from EUR 500 (BG) to

EUR 1600 (SI) in 2016

600

800

1000

1200

1400

1600 1995 2000 2005 2010 2016

8Note: Data 1995: Bosnia and Herzegovina 1996, Serbia 1999.

Source: wiiw Annual Database incorporating national and Eurostat statistics.

0

200

400

600

BG CZ EE HR HU LT LV PL RO SI SK

0

200

400

600

800

1000

1200

1400

1600

AL BA ME MK RS XK BY KZ RU UA

Austria: EUR 3600

Unit labour costs in comparison, PPP adjusted, Austria = 100

ULC levels mostly dropped between 2010 and 2016 and

competitiveness improved (except BG, HU, EE, AL, RS, XK)

30

40

50

60

70 1995 2000 2005 2010 2016

9Note: Data 1995: Romania and Macedonia 1996, Bosnia and Herzegovina and Serbia 1999. Data 2000: Kosovo 2004.

Source: wiiw Annual Database incorporating national and Eurostat statistics.

0

10

20

BG CZ EE HR HU LT LV PL RO SI SK

0

10

20

30

40

50

60

70

AL BA ME MK RS XK BY KZ RU UA

GDP growth in 2016-2019 (in %) and contribution of individual demand

components in percentage points

Main GDP growth driver is household consumption,

gradually aided by investments and also net exports …

4

6

8

10

Household final consumption Change in inventories

Gross fixed capital formation Government final consumption

Net exports GDP total

10Source: wiiw Annual Database incorporating national and Eurostat statistics.

-4

-2

0

2

4

BG CZ EE HR HU LT LV PL RO SI SK

'16 '17 '18 '19

-4-202468

10

AL BA ME MK RS XK TR

-4-202468

10

BY KZ RU UA

'16 '17 '18 '19'16 '17 '18 '19

EU-CEE

WB + TR CIS + UA

Growth forecasts revised mostly upwards …

Real GDP growth forecast and revisionsForecast, % Revisions, pp

2017 2018 2019 2017 2018 2019

BG 3.8 3.7 3.5 0.9 0.6 0.2

CZ 3.7 3.2 3.0 1.3 0.6 0.7

EE 3.8 3.3 2.9 1.6 1.0 0.5

HR 3.0 2.7 3.0 0.2 -0.2 0.0

HU 4.0 3.9 3.0 0.7 0.5 -0.1

LT 3.8 3.5 2.8 1.1 0.7 -0.3EU-CEE

11Note: Current (October 2017) forecast and revisions relative to the wiiw spring forecast 2017. Colour scale reflects

variation from the minimum (red) to the maximum (green) values. Source: wiiw forecast October 2017.

LT 3.8 3.5 2.8 1.1 0.7 -0.3

LV 4.2 3.8 3.2 1.7 1.1 0.4

PL 3.8 3.5 3.3 0.9 0.5 0.2

RO 5.7 4.5 4.6 1.7 0.5 0.6

SI 4.0 3.9 3.7 1.1 1.0 0.7

SK 3.3 3.6 4.0 0.2 0.0 0.1

AL 3.9 4.2 4.1 0.4 0.3 0.1

BA 3.0 3.4 3.5 0.2 0.4 0.4

ME 2.7 2.9 3.0 -0.4 0.0 -0.3

MK 1.8 3.1 3.4 -1.3 -0.2 0.4

RS 1.9 2.5 2.7 -0.9 -0.5 -0.6

XK 3.7 3.8 3.8 -0.2 0.0 0.1

Turkey TR 5.4 3.9 3.9 3.3 1.3 0.8

BY 2.0 2.3 2.6 1.5 0.7 0.4

KZ 3.0 3.0 3.5 1.0 0.0 0.5

RU 1.7 1.9 1.9 0.0 0.2 -0.1

UA 2.0 3.0 3.0 -0.5 0.0 0.0

EU-CEE

WB

CIS +UA

GDP grows at three speeds: EU-CEE, Western Balkans, CIS

2017 2018 2019

RO Romania 5.7 4.5 4.6

TR Turkey 5.4 3.9 3.9

LV Latvia 4.2 3.8 3.2

2017 2018 2019

XK Kosovo 3.7 3.8 3.8

SK Slovakia 3.3 3.6 4.0

HR Croatia 3.0 2.7 3.0

12Forecast: wiiw (October 2017).

LV Latvia 4.2 3.8 3.2

HU Hungary 4.0 3.9 3.0

SI Slovenia 4.0 3.9 3.7

AL Albania 3.9 4.2 4.1

BG Bulgaria 3.8 3.7 3.5

EE Estonia 3.8 3.3 2.9

LT Lithuania 3.8 3.5 2.8

PL Poland 3.8 3.5 3.3

CZ Czech Republic 3.7 3.2 3.0

BA Bosnia & Herzegovina 3.0 3.4 3.5

KZ Kazakhstan 3.0 3.0 3.5

ME Montenegro 2.7 2.9 3.0

BY Belarus 2.0 2.3 2.6

UA Ukraine 2.0 3.0 3.0

RS Serbia 1.9 2.5 2.7

MK Macedonia 1.8 3.1 3.4

RU Russia 1.7 1.9 1.9

� The EU-CEE region is catching up again

� Economic convergence has resumed at a somewhat greater speed

than expected in spring

A New Normal ? CESEE region back on track

to convergence

13

� The catching-up process will continue at least in the medium run

� Convergence is not expected to resume in Russia

� Meagre growth in Russia will adversely affect the growth prospects of

its CIS partners

� Economic growth seems to be largely unaffected by geopolitical

challenges and political instability

Special section I

Back on track to convergence, but it is a long-term

process: GDP per capita at PPP (EU-28 = 100)

2026

SK

SI

RO

14

0.0 10.0 20.0 30.0 40.0 50.0 60.0 70.0 80.0 90.0 100.0

2000

2008

2016

RO

PL

HU

LT

LV

HR

EE

CZ

BG

Special section II

The euro will survive and attract new members …

Euro accession is in the interests of Croatia and Bulgaria

15

Euro accession is potentially advantageous for Hungary and Poland

The case is less clear cut for the Czech Republic and Romania

But: in neither case would accession to the eurozone be harmful

Special section III

Many CESEE sovereigns are vulnerable to a sharp rise in

debt yields …

Sovereign risk rating, average score (less is worse)

3.0

3.5

16

0.0

0.5

1.0

1.5

2.0

2.5

CZ, EE BG, LT SK, SI TR PL, RO KZ, LV HU, XK, MK

HR, RU AL MD BA, RS BY UA

Special section III

Many CESEE sovereigns are vulnerable to a sharp rise in

debt yields …

In some cases they are in a worse position than 10 years ago

17

Bond markets could panic, leading to funding difficulties for countries

with heavy debt loads

Ukraine stands out as particularly vulnerable from a sovereign risk

perspective

Belarus and many countries in the Western Balkans are also in a

weak position

Wiener Institut für

Internationale

Wirtschaftsvergleiche

The Vienna Institute for

International Economic

Studies

www.wiiw.ac.at

Thank you for your attention!

18

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Country codes

AL Albania ME Montenegro

BY Belarus 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

19

HR Croatia SI Slovenia

HU Hungary SK Slovakia

KZ Kazakhstan TR Turkey

LT Lithuania UA Ukraine

LV Latvia XK Kosovo

CESEE Central, East and Southeast Europe

CIS Commonwealth of Independent States

EU-CEE European Union – Central and Eastern Europe

WB Western Balkans