Looking Through the Crystal Ball: For Growth and Productivity, Can Central Europe be of Service? ARUP BANERJI REGIONAL DIRECTOR FOR EUROPEAN UNION MEMBER STATES THE WORLD BANK 6 th Annual NBP Conference on the Future of the European Economy October 14 2016 Warsaw, Poland
Central Europe beats the trend 5,0 Real GDP growth by quarters (Annual change; CLV; NSA; in percent) 4,0 3,0 2,0 1,0 0,0 Northern Europe Western Europe Central Europe Southern Europe Croatia Poland EU28 US 2015Q3 2015Q4 2016Q1 2016Q2 Source: Eurostat and OECD. Note: CLV 2 Chain linked volumes; NSA Not seasonally adjusted. 2016Q2 for EU28 and USA are flash estimates.
Employment is recovering faster than many 110 105 Total Employment (Index March 2008=100) 100 95 90 85 mar-02 mar-04 mar-06 mar-08 mar-10 mar-12 mar-14 mar-16 Source: 3 Eurostat Northern Europe Western Europe Central Europe Southern Europe EU US
LV LT EE SE FI DK UK BE IE NL AT DE FR LU RO SK CZ PL BG HU SI HR EL MT PT CY IT ES US EU28 TFP growth is higher than most, and higher than before 8 7 6 5 4 3 2 1 0-1 -2-3 TFP Growth (percent) 2002-2006 2011-2015 Northern Europe Western Europe Central Europe Southern Europe - 4 Source: Eurostat.
BUT LARRY SUMMER WORRIES ABOUT SECULAR STAGNATION
MOHAMED EL-ERIAN IS GLOOMY ABOUT THE NEW NORMAL
AND CHRISTINE LAGARDE SEES A NEW MEDIOCRE
SO FOR CENTRAL EUROPE, WHERE IS THE FUTURE PRODUCTIVITY GROWTH GOING TO COME FROM?
SO FOR CENTRAL EUROPE, WHERE IS THE FUTURE PRODUCTIVITY GROWTH GOING TO COME FROM? Increase freedom to deliver services in Europe Mateusz Morawiecki, DPM Poland, October 14 2016
SO FOR CENTRAL EUROPE, WHERE IS THE FUTURE PRODUCTIVITY GROWTH GOING TO COME FROM? SHORT-TERM, AND WITHIN THE EU: LOW HANGING FRUIT SIMPLE BARRIERS TO TRADE, PREVENTING PRODUCT AND FACTOR-PRICE EQUALIZATION SCALE OF EU MARKET SUGGESTS SIGNIFICANT POTENTIAL LONG-TERM: SERVICES AS A SOURCE OF GROWTH AND PRODUCTIVITY MORE UNCERTAIN SERVICES NOT LIKE MANUFACTURING IN TERMS OF EXPORT POTENTIAL (RODRIK) BUT WITHIN EU SINGLE MARKET: SERVICES MORE TRADEABLE THAN ELSEWHERE?
The Service Sector in Europe has been and can continue to be a driver of growth 4,0 3,0 2,0 1,0 0,0-1,0-2,0-3,0-4,0-5,0 Growth in GVA (EU28; in percent) 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Agriculture, forestry and fishing Construction Industry Services GVA growth Source: Eurostat, WB staff. 11
But Central Europe Has the Lowest Intra-EU Trade in Services 100,0 Intra-EU Trade in Goods and Services 80,0 60,0 40,0 20,0 0,0 23,2 15,2 27,7 23,1 24,1 EU28 Central Europe Northern Europe Southern Europe Western Europe Services Goods 12
And in Central Europe, it has Untapped Potential as a Driver of Employment Employment by Sector (in percent of total employment) 100 90 80 70 60 50 40 30 20 10 0 73 71 76 78 59 EU28 Central Europe Northern Europe Southern Europe Western Europe Services Sector Agriculture, Forestry and Fishing Industry Construction 13 Source: Eurostat, WB staff.
Central European Countries are Among the Highest Regulators of Professional Services 14
Central European Countries Have More Regulated, Less Productive Service Firms 15 Source: Orbis; OECD; WB staff.
Regulations of Services are Relatively Rigid Network sectors Retail Professional services OECD Slovenia Croatia Luxembourg Latvia Cyprus Greece France Finland Bulgaria Estonia Poland Malta Ireland Portugal EU28 Lithuania Czech R. Italy Romania Slovak R. Sweden Belgium Hungary Denmark Spain Netherlands Austria Germany UK 0,0 1,0 2,0 3,0 16 Source: OECD OECD Luxembourg Belgium Italy Spain Finland Germany France Poland Greece Austria Hungary EU28 Portugal Romania UK Slovak R. Denmark Cyprus Czech R. Ireland Estonia Croatia Lithuania Malta Netherlands Slovenia Sweden Latvia Bulgaria 0,0 1,0 2,0 3,0 4,0 5,0 OECD Croatia Luxembourg Poland Cyprus Hungary Greece Portugal Slovak R. Austria Germany Slovenia Belgium Spain Czech R. France EU28 Italy Lithuania Estonia Malta Ireland Netherlands Denmark UK Finland Sweden 0,0 1,0 2,0 3,0 4,0
Reducing Entry and Conduct Barriers Increases Firm-level Productivity FI DK IE LT EE FR CZ NL DE HR HU BE GR SI PT AT PL ES SK IT Reducing Barriers to Entry (Impact on TFP; percent) Average High - 2,0 4,0 6,0 IT NL ES AT DK HU FI PT BE PL DE FR IE CZ SK EE GR LT SI HR Reducing Conduct Barriers (Impact on TFP; percent) Average High 0,0 2,0 4,0 6,0 8,0 10,0 Source: OECD; WB staff. Note: Charts show the percent increase of TFP from reducing barriers 17 to an average for EU or to the three least restrictive countries.
Reducing Service Sector Barriers will Increase Productivity in Central Europe Percent increase of TFP from reducing service sector barriers to the level of the three least restrictive countries 18
Providers of services face many hurdles to offering their services in other EU member states Adoption of different ownership structure Change in insurance Find workers with different qualifications Become members of professional associations Face advertising restrictions 19
POLICY IDEAS Prioritize service sector reforms across EU member states and formalize it in a roadmap Create a common market for professional services Facilitate a debate about the benefits and costs of reform with service sector providers and users Retrain workers that could be negatively affected by the proposed reforms. 20
For more, see: World Bank: EU Regular Economic Report Fall 2016 http://worldbank.org/eurerer 21