January 2008

World Bank EU8+2World Bank EU8+2 Regular Economic Report Regular Economic Report

Special Topic on Satisfaction with Life and Special Topic on Satisfaction with Life and Public Service Delivery Public Service Delivery

January 2008January 2008

The World Bank’s Regular Economic The World Bank’s Regular Economic Reports (May, September, January) Reports (May, September, January) examine recent economic developments examine recent economic developments and prospects in the NMS. Each edition and prospects in the NMS. Each edition includes a Special Topic of current policy includes a Special Topic of current policy relevance in the region. This one focuses relevance in the region. This one focuses on the satisfaction with life and public on the satisfaction with life and public services .services .

Message 1:Message 1:

The economic outlook for the EU8+2 The economic outlook for the EU8+2 in 2008 and 2009 is generally in 2008 and 2009 is generally positive, however, as in the advanced positive, however, as in the advanced economies, the baseline scenario is economies, the baseline scenario is now subject to greater downside risk.now subject to greater downside risk.

GDP growth rates peaked in many countries GDP growth rates peaked in many countries in the first half of 2007.in the first half of 2007.This deceleration is likely to continue though This deceleration is likely to continue though 2008 but growth could still average as much 2008 but growth could still average as much as 5%. as 5%. The slowdown is most pronounced in the The slowdown is most pronounced in the Baltics. Baltics. Growth should gradually resume in Hungary. Growth should gradually resume in Hungary. Romania and Bulgaria may stay at or near Romania and Bulgaria may stay at or near current rates of growth.current rates of growth.The rates of growth were unsustainable in The rates of growth were unsustainable in some countries.some countries.

Message 2: Message 2:

While globalization offers the While globalization offers the prospect of higher sustained growth, prospect of higher sustained growth, it also carries risks related to it also carries risks related to turbulence in external markets.turbulence in external markets.

Potential for more severe global contraction Potential for more severe global contraction affecting export markets in EU. affecting export markets in EU.

Risk of cutoff of financing for current account Risk of cutoff of financing for current account deficits which are large in the Baltics and are deficits which are large in the Baltics and are continuing to grow in Romania and Bulgaria.continuing to grow in Romania and Bulgaria.

Significant portion of debt is denominated in, Significant portion of debt is denominated in, or linked to, foreign currency.or linked to, foreign currency.

Message 3: Message 3:

The disturbances originating in the The disturbances originating in the sub-prime mortgage market in the sub-prime mortgage market in the US have widened to affect other US have widened to affect other countries and other markets, and countries and other markets, and prospects for US growth have prospects for US growth have become less clear, but several become less clear, but several factors serve to dampen the effect factors serve to dampen the effect on the EU8+2.on the EU8+2.

EU8+2 economies are linked more directly EU8+2 economies are linked more directly to the EU than the US.to the EU than the US.

Banks in the region are not as exposed to Banks in the region are not as exposed to the sub prime market. the sub prime market.

Domestic private demand (not net external Domestic private demand (not net external demand) has been the main engine of demand) has been the main engine of growth. growth.

While credit has increased rapidly, private While credit has increased rapidly, private borrowers were under-leveraged a the borrowers were under-leveraged a the outset.outset.

Message 4: Message 4:

Inflation is on the rise throughout the Inflation is on the rise throughout the regionregion

Food and oil prices are a main factor.Food and oil prices are a main factor.

Changes may not be temporaryChanges may not be temporary

Credit expansion slowing but strong.Credit expansion slowing but strong.

Currency appreciation effects have Currency appreciation effects have reversed in some countries. reversed in some countries.

Wage growth easing but still strong Wage growth easing but still strong

Unit labor costs continue to rise.Unit labor costs continue to rise.

Convergence dynamics create strong Convergence dynamics create strong price pressures for non-traded goods.price pressures for non-traded goods.

Message 5:Message 5:

The region faces some important The region faces some important macroeconomic challenges.macroeconomic challenges.

It is difficult for fixed exchange rate It is difficult for fixed exchange rate countries to use monetary policy to fight countries to use monetary policy to fight inflation and contain CADs.inflation and contain CADs.

Monetary policy is less effective when a Monetary policy is less effective when a large portion of debt is in foreign currency.large portion of debt is in foreign currency.

Authorities must rely more on fiscal policy Authorities must rely more on fiscal policy to control demand but have been reluctant to control demand but have been reluctant to take stronger measures despite buoyant to take stronger measures despite buoyant revenues which may soften next year.revenues which may soften next year.

Special topicSpecial topic

Satisfaction with Life Satisfaction with Life and Public Service Delivery and Public Service Delivery

in EU8+2 Countriesin EU8+2 Countries

EBRD-World Bank Life in Transition EBRD-World Bank Life in Transition SurveySurvey

1.Satisfaction with life and surroundings

2.Satisfaction with public service delivery

3.Other findings

• Priorities for public investments

• Democracy

• Economic system

• Corruption

• Income redistribution

Overall satisfaction with life is high..Overall satisfaction with life is high..

0 20 40 60 80 100Percent of respondents

Hungary

Bulgaria

Romania

Poland

Lithuania

Czech Republic

Latvia

Croatia

Slovakia

Estonia

Slovenia

All things considered, I am satisfied with my life right now

Strongly disagree Disagree

Neither Agree

Strongly agree

..even if that with the economy is not..even if that with the economy is not

0 20 40 60 80 100Percent of respondents

Hungary

Croatia

Bulgaria

Romania

Slovakia

Slovenia

Poland

Latvia

Czech Republic

Lithuania

Estonia

Economic situation is better today than around 1989

Strongly disagree Disagree

Neither Agree

Strongly agree

Mixed responses about impact of transition Mixed responses about impact of transition on on theirtheir lives … lives …

0 20 40 60 80 100Percent of respondents

Hungary

Croatia

Bulgaria

Romania

Slovakia

Latvia

Poland

Czech Republic

Slovenia

Lithuania

Estonia

My household lives better now than around 1989

Strongly disagree Disagree

Neither Agree

Strongly agree

.. relative to .. relative to parents parents ....

0 20 40 60 80 100Percent of respondents

Hungary

Bulgaria

Poland

Czech Republic

Croatia

Latvia

Romania

Lithuania

Slovenia

Estonia

Slovakia

I have done better in life than my parents

..with optimism about the future for ..with optimism about the future for childrenchildren

0 20 40 60 80 100Percent of respondents

Hungary

Slovenia

Bulgaria

Romania

Croatia

Czech Republic

Poland

Slovakia

Estonia

Latvia

Lithuania

Children born now will have a better life than my generation

Strongly disagree Disagree

Neither Agree

Strongly agree

2. Satisfaction with Public Service 2. Satisfaction with Public Service DeliveryDelivery

• Public education• Request for official documents• Public health system• Road police• Social security benefits• Courts• Other police• Unemployment benefits

Generally high satisfaction levels…Generally high satisfaction levels…

0 20 40 60 80 100Percent of respondents

Unemployment benefits

Other police

Courts

Social security benefits

Road Police

Public health system

Request official documents

Public education

Satisfaction with Public Service Delivery

Very unsatisfied Unsatisfied

Neither Satisfied

Very satisfied

... though some variation by country... though some variation by country

0 20 40 60 80 100Percent of respondents

Romania

Poland

Hungary

Latvia

Lithuania

Slovakia

Czech Republic

Bulgaria

Estonia

Croatia

Slovenia

Public Health System

Very unsatisfied Unsatisfied

Neither Satisfied

Very satisfied

0 20 40 60 80 100Percent of respondents

Slovakia

Romania

Lithuania

Croatia

Poland

Bulgaria

Czech Republic

Slovenia

Latvia

Estonia

Hungary

Public Education (university, college, vocational)

Very unsatisfied Unsatisfied

Neither Satisfied

Very satisfied

3. Other Key Findings3. Other Key Findings

• Priorities for public investment• Democracy • Economic system • Corruption• Income redistribution

Support for healthcare is a prioritySupport for healthcare is a priority

Education

Healthcare

Housing

Infrastructure

Pensions

Other

Which of these fields should be the first priority for extra government investment?

0 10 20 30 40 50Percent of respondents

Croatia

Slovenia

Latvia

Estonia

Poland

Czech Republic

Romania

Lithuania

Slovakia

Hungary

Bulgaria

Healthcare

0 10 20 30 40Percent of respondents

Hungary

Romania

Poland

Bulgaria

Lithuania

Czech Republic

Estonia

Slovakia

Slovenia

Latvia

Croatia

Education

0 5 10 15 20Percent of respondents

Slovakia

Slovenia

Hungary

Czech Republic

Lithuania

Estonia

Bulgaria

Croatia

Latvia

Poland

Romania

Pensions

Strong public support for democracyStrong public support for democracy

0 20 40 60 80 100Percent of respondents

Bulgaria

Romania

Poland

Lithuania

Croatia

Latvia

Czech Republic

Estonia

Hungary

Slovenia

Slovakia

Attitudes Towards Type of Political System

Democracy preferable to any other system Authoritarian government may be preferable under some circumstances

Doesn't matter for people like me

Attitudes towards type of economic Attitudes towards type of economic systemsystem

0 20 40 60 80 100Percent of respondents

Croatia

Bulgaria

Hungary

Latvia

Poland

Lithuania

Romania

Czech Republic

Slovakia

Estonia

Slovenia

Attitudes Towards Type of Economic System

Market economy preferable to any other system Planned economy may be preferable under some circumstances

Doesn't matter for people like me

Perceptions regarding corruptionPerceptions regarding corruption

0 20 40 60 80 100Percent of respondents

Croatia

Bulgaria

Hungary

Czech Republic

Lithuania

Latvia

Slovakia

Poland

Romania

Slovenia

Estonia

There is less corruption now than around 1989

Strongly disagree Disagree

Neither Agree

Strongly agree

Strong Support for RedistributionStrong Support for RedistributionReducing income gap: share of population that would like the state to be:

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Czech Republic

Poland

Slovakia

Estonia

Hungary

Latvia

Lithuania

Slovenia

Not involved Moderately involved Strongly involved