KEF-216: Reforms for Inclusive Growth November 3 4, 216 CESEE regional economic outlook Dr. Bas Bakker, Senior Regional Resident Representative for Central and Eastern Europe, IMF European Department 216 KEF http://kef.by/
CESEE Regional Economic Outlook Minsk, November 3, 216 Bas B. Bakker Senior Regional Resident Representative for Central and Eastern Europe
Change in unemployment 215-16 (percentage points) Unemployment decline Non-CIS CESEE is growing at solid pace. Unemployment is falling rapidly GDP growth and change in unemployment 215-16. Faster growth -.5 EST HRV LVA ROU SVN -1. HUN CZE BGR POL LTU -1.5 SVK -2. 1 2 3 4 5 6 GDP growth in 216 (percent) 2
to pre-crisis lows. Unemployment rate (percent) 14 26 12 24 1 CESEE-EU 22 SEE non-eu 8 2 6 18 4 25 27 29 211 213 215 16 25 27 29 211 213 215 3
While inflation is still low 2 CPI Inflation (percent, weighted averages) 15 1 5 CESEE excl. CIS max -5 24 25 26 27 28 29 21 211 212 213 214 215 216 min 4
Real wage growth has accelerated 2 Real wage growth (y/y, percent) 15 1 5 Q2 216-5 Q2 215 HRV CZE SRB LVA ALB POL HUN LTU BGR ROU 5
Change in gross saving of corporate sector (percent of corporate sector GVA) Higher saving Which has increased wage shares and reduced corporate profits and saving Change in wage share of income and corporate saving, 214-16 4 2-2 SVN HRV CZE HUN POL -4-6 -8-1 Higher wage share -3-2 -1 1 2 3 4 5 6 Change in adjusted wage share (percent of GDP) SVK EST LVA 6
CIS suffered from recession in 214/15 Collapse of commodity prices Sudden stop in capital flows to Russia, result of sanctions on Russia Conflict in Ukraine -2-4 -6-8 -1-12 -14-16 Change in GDP (percent) Between 213-16 Between 213-15 Ukraine Belarus Russia 7
Foreign reserves (USD index, H1 213=1) Reserves drawdown Exchange rate flexibility helped absorb much of the shock 12 11 1 9 Foreign reserves and XR depreciation (6-month moving averages) RUS 214 Depreciation 213 8 7 216 215 215 214 214 6 5 216 UKR 216 BLR 4 215 3 2 2 3 4 5 6 7 8 9 1 11 USD exchange rate (index, H1 213=1) 8
although at cost of high inflation. 3 CPI Inflation (percent, weighted averages) 25 2 15 max 1 European CIS 5 CESEE excl. CIS min -5 24 25 26 27 28 29 21 211 212 213 214 215 216 9
Oil prices have rebounded 11 Commodity price indices (213=1) 1 9 8 7 6 5 4 Agricultural raw materials Food Metals Energy 3 2 213 214 215 216 1
capital inflows have picked up 25 Cumulative EPFR flows into ETFs and Mutual Funds (bonds and equity, billions of USD) 2 15 1 Russia and Ukraine 5 Other CESEE -5-1 Jan-8 Jan-9 Jan-1 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 11
CIS is now recovering 15 GDP growth in Russia, other CIS countries and changes in oil prices (percent y/y) 1 15 1 8 6 1 5 RUS 4 2 5 RUS -5 Oil prices (right axis) -2-4 -5 CIS -1-6 -8-1 -15 25 27 29 211 213 215-1 -15 25 27 29 211 213 215 12
No signs of recovery yet in Belarus; recession driven by sharp drop in domestic demand Demand and supply components: contribution to GDP in 216 (percent) 3 Belarus 3 Russia Ukraine 3 Exports GDP growth -3-6 Domestic demand Imports -3-6 -3-6 -9 Statistical discrepancy -9-9 -12 Demand Supply -12 Demand Supply -12 Demand Supply 13
Unemployment has remained low, despite recession 9 Unemployment rate in European CIS (percent) 7 5 3 25 27 29 211 213 215 14
As exchange rate depreciation reduced real wages. 1 Average monthly wages (USD) 12 Unemployment rate (percent) 8 RUS 1 UKR 6 BLR 8 6 4 UKR 4 RUS 2 2 BLR Mar-1 Jun-11 Sep-12 Dec-13 Mar-15 Jun-16 Mar-1 Jun-11 Sep-12 Dec-13 Mar-15 Jun-16 15
Forecast for 217: Non-CIS similar as 216; pick-up in CIS; Belarus still in recession 6 GDP growth (percent) 5 4 3 2 217 1-1 -2-3 216 BLR RUS SVN HRV HUN EST UKR CZE BGR SRB LTU MDA BIH SVK UVK POL LVA MKD MNE ALB ROM Note: CIS countries in red. 16
Downside risks continue to dominate the outlook Tighter and more volatile financial conditions Structurally weak growth in the euro area Slowdown in China or failure of recovery in major EMs Non-economic shocks: Political fragmentation Refugee crisis Terrorism 1 7
Long-term challenge: Potential output growth has slowed in many countries 8 7 Potential output growth in 26 and 216 (percent) 26 6 5 4 3 216 2 1 HRV SVN CZE HUN BGR LTU EST LVA SVK ROU POL 18
as productivity growth has slowed. Average total factor productivity growth (percent) 19
Employment rate (percent) Productivity slowdown is problem: low productivity is what makes CESEE relatively poor 9 Labor utilization and productivity 215 1995 8 7 6 5 4 3 2 1 Flags size reflects GDP per capita in 215 (PPP-adjusted). CIS highlighted in blue. 1 2 3 4 5 6 7 8 9 1 Labor productivity (PPP adjusted 214 USD, thousands) 2
Aging will provide further headwinds... Working age (15-64) population growth (percent) 21