Economic Outlook for 2016

The Central and Eastern European Forum

Vienna, January 19, 2016

Bas B. Bakker

Senior Regional Resident Representative

for Central and Eastern Europe

Big picture—GDP growth:

CIS in recession; rest of CEE doing better

2

-6

-4

-2

0

2

4

6

8

10

2000 2003 2006 2009 2012 2015

CEE EU

CEE

CIS

3-year rolling average PPP weighted real GDP growth

(percent)

Big picture—Inflation:

High in CIS; low in rest of CEE

3

0

2

4

6

8

10

12

14

16

18

20

2000 2003 2006 2009 2012 2015

3-year rolling average CPI inflation

(percent)

CEE EU

CEE non-EU

CIS

Outside of CIS, most countries moderate

to fairly strong growth

4

GDP growth

(percent) 2015 2016

-10.0 - -5.0

-5.0 - 0.0

0.0 - 1.0

1.0 - 2.0

2.0 - 3.0

3.0 - 4.0

Note: Striped fill denotes CESEE country under IMF programs.

Risks for the Region

Hard landing in China

Prolonged recession in Russia

Disappointing Euro Area growth

Financial market volatility

Geopolitical tensions

5

And of course the Refugee Crisis

6

20

40

60

80

100

120

140

160

180

Jan

-14

Feb

-14

Mar-

14

Ap

r-14

May-1

4

Jun

-14

Jul-

14

Au

g-1

4

Sep

-14

Oct

-14

No

v-1

4

Dec-

14

Jan

-15

Feb

-15

Mar-

15

Ap

r-15

May-1

5

Jun

-15

Jul-

15

Au

g-1

5

Sep

-15

Germany

Hungary

Sweden

Italy Finland

Total EU

First-time asylum appilcations received by EU countries

(thousands of people)

Per capita GDP well above pre-crisis level

7 Greece Cyprus Ukraine Italy Croatia Slovenia Portugal Spain Russia France

Austria United Kingdom

Serbia Czech Rep.

Montenegro Hungary

Bosnia and Herz. Ireland

Germany Romania

Estonia Latvia

Bulgaria Slovakia

Lithuania Macedonia

Belarus Moldova

Poland Albania

-30 -20 -10 0 10 20 30

Real GDP per capita, 2015

(percent change since 2008)

Note: Selected EU15 countries in blue

But crisis legacies still to be addressed:

NPLs remain high…

8

Non-performing loans

(latest available data, percent of total loans)

0.0 - 5.0

5.0 - 10.0

10.0 - 15.0

15.0 - 20.0

20.0 - 25.0

25.0 - 100.0

Below 5 percent

5-10 percent

10-15 percent

15-20 percent

20-25 percent

Above 25 percent

Fiscal buffers have yet to be rebuilt

Loosening 2016 targets does not help!

9

0

1

2

3

4

5

6

7

8

Fall 2015 WEO

Fall 2014 WEO

Estimates of 2016 Fiscal Deficit by WEO vintage

(percent of GDP)

Estimates of 2016 deficit as in:

Longer term challenge: boosting productivity

and employment rate

10

20

30

40

50

60

70

80

90

10 30 50 70 90 110

Em

plo

ym

en

t ra

te (

perc

en

t)

Labor utilization and productivity, 2015

Labor productivity (PPP adjusted USD thousand)

Note: Bubble color reflect regional groupings. Bubble size reflect GDP per capita level (PPP adjusted)

*2014

MNE* UKV* SRB BIH

MDA

UKR

ALB MKD

BLR

SVK POL

HRV

RUS

BGR ROU

LAT

EST CZE

SVN LTU

HUN

NLD DEU

Thank you

Refugee crisis

12

0 - 2

2 - 4

4 - 6

6 - 8

8 +

Share of non-nationals in total population, 2013

Refugee crisis

13

below 0 percent

0 - 1

1 - 2

2 - 3

3 - 4

over 4 percent

below 0 percent

0 - 1

1 - 2

2 - 3

3 - 4

over 4 percent

Change in asylum applications as a share of total population,

Q1-Q3 2015 compared to Q1-Q3 2014