Recovery: Limp and Battered
Vasily Astrov, Vladimir Gligorov, Doris Hanzl-Weiss, Peter Havlik, Mario Holzner, Gabor Hunya, Sebastian Leitner, Zdenek Lukas, Anton Mihailov, Olga Pindyuk, Leon Podkaminer, Josef Pöschl, Sandor Richter and Hermine Vidovic
wiiw Current Analyses and Forecasts No. 8, July 2011
143 pages including 38 Tables and 19 Figures
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|1||Albania: Adolescent development||Mario Holzner||details|
|2||Baltic States: Recovering again on the fast lane||Sebastian Leitner||details|
|3||Bosnia and Herzegovina: Some chance of getting things moving||Josef Pöschl||details|
|4||Bulgaria: Will the export-led recovery be sustained?||Anton Mihailov||details|
|5||Croatia: EU membership within reach||Hermine Vidovic||details|
|6||Estonia: Recovering again on the fast lane||Sebastian Leitner||details|
|7||Hungary: One-sided growth - only exports matter||Sandor Richter||details|
|8||Kazakhstan: Strong growth continues, but problems in the banking sector remain||Olga Pindyuk||details|
|9||Latvia: Out of the crisis - into the euro?||Sebastian Leitner||details|
|10||Lithuania: Reviving investments drive recovery||Sebastian Leitner||details|
|11||Macedonia: Stability preserved||Vladimir Gligorov||details|
|12||Montenegro: Policy challenges||Vladimir Gligorov||details|
|13||Poland: Solid growth continues||Leon Podkaminer||details|
|14||Romania: Slowly emerging from the dark||Gabor Hunya||details|
|15||Russian Federation: Economic growth, political stalemate||Peter Havlik||details|
|16||Serbia: Slow and unbalanced recovery||Vladimir Gligorov||details|
|17||Slovakia: Robust exports, strained labour market||Doris Hanzl-Weiss||details|
|18||Slovenia: Political mess reduces ability to act||Hermine Vidovic||details|
|19||The Czech Republic: Fiscal consolidation amid elevated political tensions||Leon Podkaminer||details|
|20||Turkey: A sound or overheated and relapse-threatened economy?||Josef Pöschl||details|
|21||Ukraine: IMF programme off-track||Vasily Astrov||details|
In 2011, net exports will play an essential and positive role in maintaining GDP growth in many new member states (NMS) where domestic demand continues to be languid (e.g. Czech Republic, Hungary and Romania). In countries whose exports depend on energy and raw materials (Russia and Ukraine), net exports will contribute negatively to overall GDP growth (as imports will also rise owing to currency appreciation). In the few countries remaining, net exports will assume a neutral role in generating GDP growth. At a later stage, the contribution of net exports is expected to drop on a fairly universal scale, reflecting a revival in domestic demand (both consumption and investments) and a deterioration of trade balances. All in all, continuation of growth in 2011 in the CESEE region hinges decisively on foreign demand. In the case of Russia, Kazakhstan and (to a lesser degree) Ukraine, an unpredictable slump in the world-market prices of, and demand for, energy carriers and metals would slow down growth substantially. In the case of the remaining CESEE countries, a renewed weakness of growth in the euro area could well mean immediate cuts in their exports. Those cuts could possibly trigger a new slump in their overall GDP growth. Although quite unpredictable, a renewed growth slowdown in the euro area cannot be ruled out. Failure to resolve the euro area debt crisis in an orderly manner – and in the very near future as well – may lead to another financial-cum-real crisis in the euro area; once again it could spill over to the NMS and the Western Balkan countries. A still greater risk looms large as well: should the institutional cohesion of the euro area (and of the whole EU) weaken, the NMS are likely to lose out – both economically and politically.
The CESEE region is still included in a larger group of countries: that of the ‘emerging markets’. However, the economic performance of the CESEE countries is increasingly at variance with that of the remaining ‘emerging markets’. In terms of overall dynamism, the CESEE countries (in particular the NMS) are looking increasingly similar to the euro area – yet without having achieved the euro area’s levels of development. In most cases, the CESEE countries’ relatively close association with the European Union was to all intents and purposes inevitable. However, that irresistible association (implying a relatively rapid external liberalization of the CESEE countries’ trade and capital flows, for example) may have also borne some unwelcome consequences. One of these consequences may have been their losing out to those ‘emerging markets’ whose external opening up has been much more gradual and cautiously controlled.
Various scars left by the 2008-2009 recession, be the victims productive capacities, balance sheets of banks, firms and households or labour markets, will gradually have to heal. In the interim, those scars will impair the growth of household consumption and fixed investment in the business sector in 2011 and afterwards. Moreover, attempts at serious fiscal consolidation, which in many countries would be either untimely or not really necessary, will have an additional impact on the rate of domestic demand growth. In all likelihood, however, in many countries fiscal consolidation will be relatively gradual – also on account of electoral concerns.
Accelerating inflation is another challenge. Although to date inflation has been essentially exogenous to most CESEE countries – driven by rising energy and food prices – it could provoke more restrictive monetary policies. These, in turn, could support high capital inflows (carry trade) and even stronger nominal appreciation of national currencies in the countries with flexible exchange rates. A decline in cost-competitiveness and worsening in net exports (in tandem with larger current account deficits) could also ensue in countries with fixed exchange rates owing to inflation differentials with respect to the eurozone. The fact that unemployment is expected to return rather slowly to pre-crisis levels could, however, reduce the dangers of wage-driven inflation and induce more accommodative monetary policies.
In conclusion, growth in the CESEE region is expected to stabilize, yet remain rather unimpressive in the coming years - the proviso being that external conditions are not disrupted once again.
Keywords: Central and East European new EU member states, Southeast Europe, future EU member states, Balkans, former Soviet Union, Turkey, economic forecasts, employment, foreign trade, competitiveness, debt, deleveraging, exchange rates, flow of funds
JEL classification: C33, C50, E20, E29, F34, G01, G18, O52, O57, P24, P27, P33, P52
Countries covered: Albania, Bosnia and Herzegovina, Bulgaria, Visegrad countries, CIS, Croatia, Czech Republic, Estonia, European Union, Hungary, Kazakhstan, Latvia, Lithuania, Macedonia, Montenegro, New EU Member States, Poland, Romania, Russia, SEE, Serbia, Slovakia, Slovenia, Turkey, Ukraine, Central, East and Southeast Europe
- Recovery: Limp and Battered (press conference presentation in German)
- Recovery: Limp and Battered
- Schuldendynamik, Finanzierungssalden, Ausgaben- und Sparverhalten (vor und nach der Finanzkrise)
- Debt dynamics, flow of funds and deleveraging