Wiener Institut für
Internationale
Wirtschaftsvergleiche
The Vienna Institute for
International Economic
Studies
www.wiiw.ac.at
Mario Holzner
New wiiw forecast for
Central, East and Southeast Europe, 2015-2017
CESEE: A time of moderate expectations
21st Austria webinar, 12 March 2015
2
Source: wiiw (March 2015), Eurostat. Forecasts by wiiw and European Commission (Winter Report,
February 2015).
GDP growth rate since 1995
A time of moderate expectations
-10
-8
-6
-4
-2
0
2
4
6
8
10
12
1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017
NMS-11 EU-15 Turkey Russia
3
Source: wiiw (March 2015), Eurostat. Forecasts by wiiw and European Commission (Winter Report,
February 2015).
Differential in GDP growth vis-à-vis EU-15 since 1995, in pp
Difference to EU-15 diminishing
-10
-8
-6
-4
-2
0
2
4
6
8
1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017
NMS-11 West Balkans - 6 CIS-4
4
Source: Own calculations based on AMECO database.
Euro area (12 original members) – per capita GDP growth rate
The euro area seized by secular stagnation
-6
-4
-2
0
2
4
6
8
1960 1966 1972 1978 1984 1990 1996 2002 2008 2014
GDP per capita 10-year average
5
Source: Own calculations based on AMECO database.
GDP share of gross capital formation
Euro area investment and wage share tumbling
18
20
22
24
26
28
30
1960 1966 1972 1978 1984 1990 1996 2002 2008 2014
50
53
56
59
62
65
68
1960 1966 1972 1978 1984 1990 1996 2002 2008 2014
Adjusted GDP wage share
Euro area (12 original members)
Euro area (12 original members)
6
� Disinflation → Deflation
� Unemployment high, or very high
� Diminishing role of trade balance
� Household consumption unimpressive
� Investment recovering only slowly
Insufficiency of aggregate demand also in CESEE
7
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2013m01 2013m05 2013m09 2014m01 2014m05 2014m09 2015m01
Energy Food Core inflation CPI, year-on-year growth in %
Source: wiiw Monthly Database incorporating national and Eurostat statistics.
Apropos deflation: e.g. Poland
CPI growth and contribution of components, 2013-2015, in percentage points
8
Source: wiiw Annual Database incorporating national and Eurostat statistics. Forecasts by wiiw.
Growth: unimpressive GDP growth in 2014-2015, and contributions of individual demand components in pp
-8
-6
-4
-2
0
2
4
6
8
HR BG SI EE LV CZ HU LT RO SK PL
Gross fixed capital formation Household final consumption Net exports GDP (growth in %)
‘14|‘15
-8
-6
-4
-2
0
2
4
6
8
UA RU BY RS BA AL KZ ME TR MK XK
Gross fixed capital formation Household final consumption Net exports GDP (growth in %)
‘14|‘15
9
� Still depressed
� Unconstrained by the availability of funds
� Insensitive to interest rates
� Highly profitable
� Wage-led – not profit-led
Private investment
10
Source: Own calculations based on AMECO database.
GDP share of private sector gross fixed capital formation, in %
Private investment still depressed
15
16
17
18
19
20
21
22
23
24
25
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
NMS-11 Germany
11
Source: Own calculations based on AMECO database.
E.g. Poland:
Net lending (+) or net borrowing (-): corporations and households, % GDP
Corporate investment unconstrained by availability of funds
-4
-2
0
2
4
6
8
Corporations2001
Households2001
Normality
-4
-2
0
2
4
6
8
Corporations2007
Households2007
Bubble
-4
-2
0
2
4
6
8
Corporations2014
Households2014
Distress
12
Source: National bank statistics, wiiw own calculations.
Non-financial corporations, CESEE 2014
Corporate investment insensitive to interest rates
Slovenia
Macedonia
Czech Republic
-25
-20
-15
-10
-5
0
5
10
15
0 2 4 6 8 10
Gro
wth
rate
of sto
ck o
f lo
an
s
Real interest on new loans
13
Source: BIS, RBI, own calculations using
USD/EUR exchange rate as of 30/09/2014.
Austrian banks’
exposure to
CESEE substantial
14
Source: National bank statistics, wiiw own calculations.
Private sector, CESEE 2014
Profits and risks unevenly distributed
HR
CZ
HU
PL
RO
SK
RU
UA
0
5
10
15
20
25
30
-20 -15 -10 -5 0 5 10 15 20 25
No
n-p
erf
orm
ing
loans
Stock of bank loans to non-financial private sector growth
15
Source: AMECO.
Net returns/net capital stock ratios for 2011-2014
(base period index 2000-2003), percentage change
Profitability of the capital stock mostly increasing
-26.2% -26.1%-22.7%
1.9% 3.6%8.5%
22.0%24.8%
36.5%
61.7%
10.1%
-40%
-20%
0%
20%
40%
60%
80%
100%
BG SI EE HR HU CZ LV LT SK PL RO DE
152.4%
16
30
35
40
45
50
55
60
1994 1999 2004 2009 2014
NMS-11 Germany
12
14
16
18
20
22
24
1994 1999 2004 2009 2014
NMS-11 Germany
Source: Own calculations based on AMECO database.
GDP shares of employee
compensation, in %
Investment is wage-led (and not profit-led)
Share of the corporate sector in private
gross disposable income, in %
17
0
1
2
3
4
5
6
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
NMS-11 Germany
Source: Own calculations.
GDP shares of public gross fixed capital formation, 2001-2014, in %
EU-funded public investment partly counterbalances
private investment
18
� Nominal wages important …
� … but exchange rate as well
� Fiscal deficits and net lending abroad absorb
excessive private savings in the NMS
Macroeconomic round-up
19
2004
2009
2014
-30
-20
-10
0
10
20
30
40
HR EE LV SI SK RO PL BG DE LT CZ HU
Note: Over- or undervaluation in the price level in relation to the GDP per capita level.
Source: Own calculations.
Percentage levels of overvaluation (positive) or
undervaluation (negative) of NMS currencies vs. euro, 2004, 2009, 2014
Exchange rate regimes do matter
Fixers Floaters
20
Remark: Bulgaria: -26.3.
Source: wiiw Annual Database incorporating national and AMECO statistics, own calculations.
Net lending (+) or net borrowing (–), 2007, 2014, in % of GDP
Fiscal deficits and net lending abroad absorb excessive
private savings in the NMS
-20 -15 -10 -5 0 5 10
Hungary
Romania
Croatia
Slovakia
Lithuania
Czech Republic
Latvia
Slovenia
Poland
Estonia
Bulgaria
Germany
2007General government Total economy
-20 -15 -10 -5 0 5 10
Slovenia
Croatia
Poland
Bulgaria
Slovakia
Hungary
Romania
Latvia
Czech Republic
Lithuania
Estonia
Germany
2014General government Total economy
21
� Weak wage growth, limited investment growth
� NMS & candidates: No substantial growth speed-up
� NMS growth differential vis-à-vis euro area diminishing from ~3%
before crisis to ~1.5%
� Current account deficit quite low (NMS) or quite high (candidates)
� Inflation gradually returns to normalcy: energy prices stabilise,
more borrowing (?)
� Unemployment recedes (NMS) or stays high (candidates)
� CIS hopefully recover in 2016
� EU economic paradigms need to be adjusted
2015-2017: A time of moderate expectations
22
Source: wiiw forecast, February 2015.
GDP growth, wiiw forecast for 2015-2017
2015 2016 2017
Kosovo 3.6 2.9 3.8
Poland 3.5 3.2 3.2
Macedonia 3.5 2.9 2.6
Turkey 3.3 3.5 3.5
Romania 2.5 3.0 3.0
Slovakia 2.5 2.7 3.0
Lithuania 2.4 2.9 3.2
Czech Republic 2.3 2.4 2.4
Hungary 2.3 2.0 2.0
Montenegro 2.3 2.6 2.9
Latvia 2.1 2.8 2.8
2015 2016 2017
Estonia 2.0 2.5 3.1
Albania 2.0 2.2 2.4
Kazakhstan 2.0 3.5 4.5
Slovenia 1.7 1.8 2.0
Bosnia and Herzegovina 1.6 2.1 2.4
Bulgaria 1.5 1.9 2.3
Croatia 0.3 1.1 1.5
Serbia -0.5 1.0 1.4
Belarus -2.0 1.3 2.0
Russia -3.9 1.9 2.0
Ukraine -5.0 0.0 1.8
23
Country codes
AL Albania ME Montenegro
BA Bosnia and Herzegovina MK Macedonia
BG Bulgaria PL Poland
BY Belarus RO Romania
CZ Czech Republic RS Serbia
EE Estonia RU Russia
HR Croatia SI Slovenia
HU Hungary SK Slovakia
KZ Kazakhstan TR Turkey
LT Lithuania UA Ukraine
LV Latvia XK Kosovo
CESEE Central, East and Southeast Europe
CIS Commonwealth of Independent States
NMS New Member States
SEE Southeast Europe