Eastern Europe: Economic Developments and Outlook Miroslav Singer Governor, Czech National Bank Distinguished Speakers Seminar European Economics & Financial Centre London, 22 July 2014 Miroslav Význam Economic Waiting Sound Inside Recent or money: Developments with Německa Outside developments the Czech Euro Current the Euro Adoption: experience českou in Situation its globally Area role Czech ekonomiku The and Economy, Czech in Europe: case Risks the and CNB Outlook view 1 Miroslav Present Conditions, Future Monetary challenges Policy and and opportunities Outlook in Czech Republic Miroslav Singer Singer Singer: - Czech The Financial Macroeconomic The Czech Present Consumer economic Republic: Czech economy Crisis: Republic: economy Conditions, and Staying Likely Impacts protection financial and developments, Can Impacts development and Ahead record crisis the Monetary in of CR financial from the the and monetary low Eurozone: Curve CR the Lessons rates Policy Europe: and point with services: Lessons policy be of for Regard and CNB Outlook sustained? view the and Outlook view for Supervisors of CNB to the financial and Monetary Supervisors Czech approach Challenges for sector CR Policy banks 1 11 1
Overview Eastern Europe vs EU-15: GDP performance 1997 2013 Comparable real GDP: Methodology Performance 1997 2013 Comparative performance during crisis 2008 2013 Eastern Europe: growth outlook Miroslav Singer Eastern Europe: Economic Developments and Outlook 2
Groups of countries Eastern Europe will be compared with EU-15 Eastern Europe: New EU countries: Czech Rep., Slovakia, Poland, Hungary, Estonia, Latvia, Lithuania, Slovenia, Bulgaria, Romania, Malta, Cyprus, Croatia South-East Europe: Serbia, Montenegro, FYR Macedonia, Bosnia Hercegovina, Albania EU-15: Austria, Italy, Greece, Portugal, Denmark, Germany, France, Netherlands, Belgium, Luxembourg, UK, Spain, Ireland, Finland, Sweden Other countries: Norway, Iceland, Switzerland, Japan, USA, Turkey Miroslav Singer Eastern Europe: Economic Developments and Outlook 3
Real GDP in 2013 (1997 = 100) EU-15 Eastern Europe Other countries Note: 1) 2012 2) 2010 GDP has for the most part grown more in Eastern Europe than in the EU-15 over the last 16 years Miroslav Singer Eastern Europe: Economic Developments and Outlook 4 Source: Eurostat, own comp.
Real GDP in 2013 (1997 = 100) EU-15 1997=100 Annualised growth (%) Eastern Europe 1997=100 Annualised growth (%) Italy 106,5 0,39 Croatia 129,2 1,61 Greece 113,5 0,80 Hungary 137,0 1,99 Portugal 114,8 0,87 Cyprus 141,5 2,19 Denmark 116,3 0,95 Slovenia 143,8 2,30 Germany 122,9 1,30 Malta 144,1 2,31 France 126,5 1,48 Czech Rep. 147,2 2,45 Netherlands 127,7 1,54 Serbia 150,1 2,57 Belgium 127,9 1,55 Macedonia 153,4 2,71 Austria 134,6 1,87 Romania 159,7 2,97 UK 134,9 1,89 Bulgaria 174,2 3,53 Spain 136,8 1,98 Montenegro 1) 177,8 3,66 Finland 137,0 1,99 Slovakia 178,8 3,70 Sweden 148,9 2,52 Poland 181,5 3,80 Luxembourg 167,6 3,28 Estonia 189,4 4,07 Ireland 173,7 3,51 Latvia 189,5 4,08 Lithuania 192,2 4,17 Non-weighted average 1,73 3,01 Note: 1) 2012 Source: Eurostat, own comp. The non-weighted average of annualised growth in Eastern European countries was 1.3 p.p. above the EU-15 average in 1997 2013 Miroslav Singer Eastern Europe: Economic Developments and Outlook 5
Is real GDP a good measure of longterm growth? Comparative analysis Miroslav Singer Eastern Europe: Economic Developments and Outlook 6
Possible reasons for mismeasurement of GDP by statistical offices: Czech Statistical Office case 1/2 Filer and Hanousek (2000, 2002, 2004) questioned correctness of calculation of inflation by CZSO; factors that might have biased calculation of inflation level upwards and hence true economic growth downwards: consumer substitution bias outlet substitution bias quality improvement bias new goods bias Instead of compound decline of 0.7% a year in 1990 1999 (reported by CZSO) growth was 3.6% during the period Lommatzsch (2004): CZSO did not sufficiently incorporate increase in production quality into inflation and this led to systematic underestimation of true real GDP growth (by 1 1.5 percentage points in previous years) Miroslav Singer Eastern Europe: Economic Developments and Outlook 7
Possible reasons for mismeasurement of GDP by statistical offices: Czech Statistical Office case 2/2 Benáček (2004): CZSO did not sufficient account for increase in quality in export production rate of growth of CZ for 1999 2003 was 4.9% and not 1.8% as implied by CZSO Kubíček and Tomšík (2004) shared Benáček s view average real GDP growth of CZ in 1994 2003 was 3.6% rather than 2.2% as reported by CZSO Lommatzsch (2004) and Kubíček and Tomšík (2004): growth in terms of trade was another possible reason why real GDP might lead to systematic underestimation of growth and wealth Vintrová (2005) and Spěváček (2005): due to terms of trade changes, Czech gross domestic income (which better reflects country s trade success) grew 0.9 p.p. faster than GDP on average in 1996 2004 There are plenty of reasons why statistical offices may not have been able to calculate GDP correctly; however, even the correct calculation may not suitably approximate the long-run growth of emerging economies Miroslav Singer Eastern Europe: Economic Developments and Outlook 8
What has happened? Standard and comparable real GDP Switzerland USA Source: Eurostat, own calculations Comparable real GDP = nominal GDP (in current prices) in euro terms deflated by Eurozone inflation (foreign real GDP that domestic real GDP can buy at market exchange rate) The two measures of real GDP are evolving alongside each other over the long term in the majority of developed economies (e.g. Switzerland, USA) Miroslav Singer Eastern Europe: Economic Developments and Outlook 9
Standard and comparable GDP: new EU countries Czech Republic!!! Latvia Source: Eurostat, own calculations Comparable real GDP is significantly outpacing standard real GDP in the Czech Republic and Latvia (and other converging economies for example the Baltic countries) over the long term Miroslav Singer Eastern Europe: Economic Developments and Outlook 10
Standard and comparable GDP in Poland and Brazil Poland Brazil Source: Eurostat, own calculations The difference between standard and comparable real GDP in Brazil has widened in 2010 and 2011 M. Singer Macroeconomic developments in the CR and GDP growth comparisons 11
Comparable real GDP in 2013 (1997 = 100) EU-15 Eastern Europe Other countries Note: 1) 2012 Source: Eurostat, own comp. Eastern Europe s lead over the EU-15 is larger when comparable real GDP is used Miroslav Singer Eastern Europe: Economic Developments and Outlook 12
Comparable real GDP in 2013 (1997 = 100) EU-15 1997=100 Annualised growth (%) Eastern Europe 1997=100 Annualised growth (%) Germany 109,9 0,59 Slovenia 149,8 2,56 Italy 112,8 0,75 Croatia 159,8 2,97 UK 119,0 1,09 Cyprus 162,4 3,08 Portugal 124,1 1,36 Malta 169,0 3,34 France 125,5 1,43 Macedonia 1) 175,2 3,57 Denmark 126,7 1,49 Hungary 182,5 3,83 Greece 130,1 1,66 Serbia 191,0 4,13 Austria 130,7 1,69 Poland 215,1 4,90 Belgium 132,8 1,79 Czech Rep. 217,9 4,99 Netherlands 135,2 1,90 Slovakia 292,3 6,93 Finland 136,3 1,96 Lithuania 296,5 7,03 Sweeden 144,1 2,31 Montenegro 1) 297,2 7,04 Spain 154,9 2,77 Estonia 316,2 7,46 Ireland 175,0 3,56 Latvia 323,4 7,61 Luxembourg 212,9 4,83 Bosnia Herceg. 1) 325,8 7,66 Bulgaria 341,7 7,98 Romania 345,4 8,06 Albania 1) 394,5 8,96 Non-weighted average 1,95 5,67 Note: 1) 2012 Source: Eurostat, own comp. In terms of comparable real GDP, the non-weighted average of annualised growth in Eastern European countries was 3.7 p.p. above the EU-15 average in 1997 2013 Miroslav Singer Eastern Europe: Economic Developments and Outlook 13
Difference between comparable real GDP and real GDP in 2013 (1997 = 100) EU-15 Eastern Europe Other countries Note: 1) 2012 2) 2010 Source: Eurostat, own comp. The difference between comparable real GDP and real GDP is very large in the rapidly catching-up economies of Eastern Europe (e.g. Bulgaria and Romania) Miroslav Singer Eastern Europe: Economic Developments and Outlook 14
Comparable real GDP and real GDP (1997 = 100) Note: 1) 2012 2) 2010 Source: Eurostat, own comp. As indicated by the difference between real GDP and comparable real GDP, real GDP growth is most underestimated for fast growing economies Miroslav Singer Eastern Europe: Economic Developments and Outlook 15
Comparable GDP and GDP per capita The rate of growth of an economy is indirectly proportional to its initial level of development Source: Eurostat, own comp. Miroslav Singer Eastern Europe: Economic Developments and Outlook 16
Comparative performance during crisis 2008 2013 Miroslav Singer Eastern Europe: Economic Developments and Outlook 17
Real GDP in 2013 compared to 2008 (in p.p.) EU-15 Eastern Europe Other countries Note: 1) 2012 2) 2010 There was no clear-cut difference between the EU-15 and Eastern Europe during the crisis; other countries mostly grew Source: Eurostat, own comp. Miroslav Singer Eastern Europe: Economic Developments and Outlook 18
Comparable real GDP in 2013 compared to 2008 (in p.p.) Note: 1) 2012 EU-15 Eastern Europe Other countries Source: Eurostat, own comp. Comparable real GDP reveals that other countries were hit least hard by the crisis; some EU-15 countries (Greece, Ireland) shrank more while others (Luxembourg, Sweden) grew more than Eastern European countries Miroslav Singer Eastern Europe: Economic Developments and Outlook 19
Eastern Europe: growth outlook Miroslav Singer Eastern Europe: Economic Developments and Outlook 20
GDP forecast in selected regions 2014 2015 South-East Europe 1) 2 2,6 Central Europe 2) 2,7 3,1 Western Europe 3) 1,5 1,8 Source: Eastern Europe Consensus Forecast, June 2014 1) Albania, Bosnia, Bulgaria, Croatia, Macedonia, Romania, Serbia 2) Czech Republic, Hungary, Poland, Slovakia, Slovenia 3) Germany, France, UK, Italy, Austria, Belgium, Denmark, Finland, Greece, Ireland, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland South-East Europe and Central Europe will grow faster than Western Europe this year and the next; the long-term catch-up process will thus continue Miroslav Singer Eastern Europe: Economic Developments and Outlook 21
GDP forecast in selected economies Source: Eastern Europe Consensus Forecast, June 2014 With the exception of Hungary (and Cyprus), the selected Eastern European economies will grow faster in 2015 than in 2014 Miroslav Singer Eastern Europe: Economic Developments and Outlook 22
Summary Annualised real GDP growth reveals that Eastern European countries grew 1.3 p.p. faster than EU-15 in 1997 2013 Comparable real GDP takes into account currency appreciation, it is better measure of change of significance of economy in market terms Annualised comparable real GDP grew 3.7 p.p. faster in Eastern Europe than in EU-15 in 1997 2013 Countries with lower initial GDP level grow faster than countries with higher initial GDP level; Eastern European countries had significantly lower initial GDP level in 1997 Use of real and comparable real GDP shows no clear-cut differences between Eastern Europe and EU-15 during crisis; comparable real GDP indicates that other economies performed better during crisis Eastern European countries are expected to grow faster than Western European countries in 2014 and 2015 Eastern Europe is catching up with the EU-15 in the long run; this process will continue over the next few years Miroslav Singer Eastern Europe: Economic Developments and Outlook 23
Thank you Miroslav Singer Miroslav.Singer@cnb.cz Tel: +420 224 412 000 Česká národní banka Na Příkopě 28 115 03 Praha 1 Miroslav Singer Eastern Europe: Economic Developments and Outlook 24