global headwinds Vasily Astrov astrov@wiiw.ac.at - Current trends - - PowerPoint PPT Presentation

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global headwinds Vasily Astrov astrov@wiiw.ac.at - Current trends - - PowerPoint PPT Presentation

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Wiener Institut fr The Vienna Institute for wiiw.ac.at Internationale International Economic Wirtschaftsvergleiche Studies Press conference, 4 July 2019 New wiiw forecast for Central, East and Southeast Europe, 2019-2021 Part 1: Eastern

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Wiener Institut für Internationale Wirtschaftsvergleiche The Vienna Institute for International Economic Studies

wiiw.ac.at

Part 1: Eastern Europe standing firm in face of global headwinds Vasily Astrov

Press conference, 4 July 2019 New wiiw forecast for Central, East and Southeast Europe, 2019-2021

  • Current trends
  • Medium-term outlook
  • 30 years fall of the Berlin Wall: taking stock

astrov@wiiw.ac.at

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▪ The economy in CESEE is cooling down … ▪ … but much less than expected in spring ▪ This is particularly true for the EU-CEE region ▪ Western Balkans: Slowdown largely confined to Serbia ▪ CIS: Different growth performance mainly due to differences in

fiscal policies

▪ Turkey: Economic crisis deeper than previously expected Current trends

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Remark: Current forecast and revisions relative to the wiiw Spring Forecast 2019. Colour scale variation from the minimum (red) to the maximum (green). Source: wiiw Annual Database incorporating national and Eurostat statistics, own calculation. Forecasts by wiiw.

Real GDP forecasts and revisions

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Note: CIS4 excluding MD, WB-6 data for 1Q19 partly estimated. Source: wiiw Monthly Database incorporating national and Eurostat statistics.

EU-CEE growth decouples from downturn in the euro area

Quarterly real GDP growth, change in% against preceding year

  • 1

1 2 3 4 5 6 1Q 16 2Q 16 3Q 16 4Q 16 1Q 17 2Q 17 3Q 17 4Q 17 1Q 18 2Q 18 3Q 18 4Q 18 1Q 19 EU-CEE11 WB6 CIS4+UA EA DE

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  • 4
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2 4 6 8 BG CZ EE HR HU LT LV PL RO SI SK Private consumption and fixed investments Net exports GDP total (%) Source: wiiw Annual Database incorporating national and Eurostat statistics, own calculation. Forecasts by wiiw.

GDP growth in 2018-2021 and contribution of individual demand components in percentage points

EU-CEE: Improvement in net exports in spite of strong domestic demand

'18 ‚19 ‚20 ‚21

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Source: wiiw Annual Database incorporating national and Eurostat statistics.

Real wage growth vs growth of private consumption, 2018

Consumption continues to be driven primarily by wage growth

AL BA BG BY CZ EE HR HU KZ LT LV MD ME MK PL RO RS RU SI SK TR UA XK

  • 4
  • 2

2 4 6 8 10 12 14 2 4 6 8 10 Average monthly gross wages total, real growth in % Household final consumption expenditure, real growth in %

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▪ Mainly in PL, HU, RO and BG

  • Labour shortages – strong wage growth – rising inflation
  • plus: expansionary monetary and fiscal policies

▪ But: only in RO there is cause for concern

  • verheating has been persisting for a longer period
  • expanding current account deficits

▪ CZ: counterexample

  • Stability-oriented economic policy at the expense of growth

Signs of overheating are mounting in some countries

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Source: Eurostat (series: demo_pjan), own calculations.

Annual average growth rates, 2002-2017

Main reason for increasing labour shortages: declining working-age population

  • 2.0
  • 1.5
  • 1.0
  • 0.5

0.0 0.5 1.0 1.5 2.0 2.5 LU IE CY MT ES SE UK BE FR AT DK IT NL FI EU28 CZ SI SK DE PL PT EL HR HU EE BG RO LV LT Total population Working-age population (15-64)

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Source: International Federation of Robotics (2018), World Robotics 2018.

Estimated number of multipurpose industrial robots per 10,000 persons employed

Labour shortages leading to higher automation

200 400 600 800 1000 1200 1400 1600 1800 PL TR HU CZ CN SK SI AT JP DE US 2010 2017 50 100 150 200 250 TR PL SK HU DE CZ SI AT US CN JP 2010 2017

Automotive industry Other industries

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  • 2

2 4 6 8 10 AL BA ME MK RS XK Private consumption and net exports Gross fixed capital formation GDP total Source: wiiw Annual Database incorporating national and Eurostat statistics, own calculation. Forecasts by wiiw.

GDP growth in 2018-2021 and contribution of individual demand components in percentage points

Western Balkans: Investment a key support to growth

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▪ EU-CEE: ‘soft landing’, mainly due to global economic downturn

  • in particular, protectionist risks
  • HU: slump in EU transfers

▪ Western Balkans: stable growth, rising investment

  • Chinese Belt and Road Initiative
  • but also private FDI inflows

▪ CIS: only slight acceleration

  • boom of consumer credits might end in a crisis (especially in RU)

▪ Turkey: crisis should be overcome by 2020

  • but no return to high growth rates

Medium-term outlook

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Remark: Current forecast and revisions relative to the wiiw Spring Forecast 2019. Colour scale variation from the minimum (red) to the maximum (green). Source: wiiw Annual Database incorporating national and Eurostat statistics, own calculation. Forecasts by wiiw.

Real GDP forecasts

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Source: WIOD, own calculations.

Value added in US car imports from the EU, in % of gross value added in 2014

Potential increase in US import tariffs on cars: Slovakia and Hungary most affected

0.00 0.10 0.20 0.30 0.40 0.50 0.60 DE SK HU CZ AT IT SI GB SE PL ES FR RO BE LU BG CH NL RS NO

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Source: wiiw Annual Database incorporating national and Eurostat statistics.

GDP per capita, at PPP, Austria = 100

30 years fall of the Berlin Wall: taking stock

10 20 30 40 50 60 70 80 CZ SI LT EE SK PL HU LV RO HR BG ME RS MK BA AL XK TR KZ RU BY UA MD 1989 2018

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Wiener Institut für Internationale Wirtschaftsvergleiche The Vienna Institute for International Economic Studies

wiiw.ac.at

Part 2: Austria and CESEE: A strong relationship subject to change

Julia Grübler

gruebler@wiiw.ac.at @JuliaGruebler

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The fall of the Iron Curtain 30 years ago allowed developing a strong economic relationship between Austria and CESEE, which deepened with the EU‘s Eastern enlargement 15 years ago.

▪ Did Austria's investments in the region pay off? ▪ How does Austrian foreign trade with Western Europe differ from

trade with Eastern Europe?

▪ How is Austria affected by the labour shortages in CESEE? ▪ How has the role of the Visegrád countries changed for Austria? Overview

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Share of Austrian FDI stock and FDI income in %, 2018

Austrian investments in Eastern Europe have paid off

Note: Other CESEE6 = CIS4+UA+TR. Source: OeNB. See also: Hunya et al. (2019).

71.6 54.9 24.5 29.8 15.2 20.5 2.4 2.6 3.3 3.3

10 20 30 40 50 60 70 80 Stocks Income Stocks Income Stocks Income Stocks Income Stocks Income EU28 EU-CEE11 V4 WB6 Other CESEE6

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19 35.8 15.2 19.6 5.4 24.0 30.2 18.0 21.7 3.7 26.4

Note: Other EU corresponds to EU15 excl. Germany plus Malta and Cyprus. Source: Statistik Austria.

Dwindling goods trade surpluses with Eastern Europe vs consistently high deficits with Western Europe

Austrian trade in goods 2018, share in %

◼ DE ◼ EU-MOE11 ◼ Other EU ◼ Other CESEE ◼ Rest of the world

150.0

EUR bn Exports

155.7

EUR bn Imports

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Note: Other EU corresponds to EU15 excl. Germany plus Malta and Cyprus. Source: Statistik Austria.

Austrian services ensure an overall positive trade balance

  • 15000
  • 10000
  • 5000

5000 10000 DE EU-CEE11 Other EU Other CESEE Rest of the world Trade balance in goods Trade balance in services Trade balance in total

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Source: OeNB.

Austria remains an attractive place to work for people from CESEE

Compensation of employees and workers’ remittances, 2018

◼ V4 ◼ Other EU-MOE11 ◼ Other EU ◼ WB6 ◼ Other CESEE ◼ Rest of the world

45.8 14.6 29.8 0% 20% 40% 60% 80% 100% Compensation

  • f employees

32.2 15.7 11.6 22.9 11.3 0% 20% 40% 60% 80% 100% Workers' remittances

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Note: Basic scenario. Source: Based on Leitner and Stehrer (2019).

Labour force shortages in CESEE also affect Austria

even before the ‘critical year’, when labour demand exceeds labour supply: (1) through changes in migration patterns and (2) a potential economic slowdown in CESEE

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Source: Population: Statistik Austria. Employees: BALI, Austrian Federal Ministry for Labour, Social Affairs, Health and Consumer Protection.

People from EU-CEE make a disproportionately high contribution to the Austrian economy

Population and employees in Austria by nationality

Germany and top 10 CESEE 2018, shares in % (ranking by population)

0.0 0.5 1.0 1.5 2.0 2.5 3.0 DE RS TR RO BA HU HR PL SK RU BG Bevölkerung Unselbständig Beschäftigte Gesamt Gesamt Frauen Frauen 2 4 6 8 10 12 14 Population Employees Total Women Total Women

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Conclusion (1/2) ▪ Investments:

  • Investments in CESEE play an important role both from the perspective of

Austria and of the target countries.

  • Austria is one of the top three investors in ten CESEE economies.
  • Investments in EU-CEE generated above-average profits for Austria.

▪ Foreign trade:

  • In trade in goods, Austria has a surplus with EU-CEE, but there is a deficit in

trade in services.

  • Austria's overall positive trade balance results from services exports to

countries outside CESEE.

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▪ Migration & Labour Market:

  • Austria's attractiveness as a place to work contributes to the labour

shortages of its eastern neighbours.

  • The share of CESEE in the workforce exceeds the share of the population.

They thus contribute disproportionately to the Austrian economy.

▪ The Visegrád states (V4) are among Austria's most important

economic partners:

>2% of the Austrian population; ~5% of employees >10% of the Austrian trade in goods >15% of Austrian direct investment abroad >20% of income from foreign direct investments >40% of the foreign claims of Austrian banks  Rising political risks in the V4 may also have a negative impact on the Austrian economy

Conclusion (2/2)

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Wiener Institut für Internationale Wirtschaftsvergleiche The Vienna Institute for International Economic Studies

www.wiiw.ac.at

Thank you for your attention!

Follow us: www.wiiw.ac.at » Open Data Appendix of data to the report, Excel file, free download » Data Visualisation tool to create customised graphs

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▪

European Parliament (2019), 2019 European elections results, June, https://www.election-results.eu/

▪

Hunya, G., A. Adarov, M. Ghodsi and O. Pindyuk (2019), ‘Foreign Investments Mostly Robust Despite Global Downturn; Shift into Services. FDI in Central, East and Southeast Europe’, wiiw FDI Report, June, Vienna, https://wiiw.ac.at/p-4947.html

▪

Leitner, S.M. and R. Stehrer (2019), ‘Demographic Challenges for Labour Supply and Growth’, wiiw Research Report, No. 439, March, Vienna, https://wiiw.ac.at/p-4868.html

References

▪

Székely, I.P. (Hg.) (2019), ‘Faces of Convergence’, wiiw e-book, https://wiiw.ac.at/p-4908.html

▪

wiiw (2016), ‘Reality Check: wiiw Economists Reflect on 25 Years of Transition’, wiiw Monthly Report, January, Vienna, https://wiiw.ac.at/p-3766.html

Recommendation

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Country codes

AL Albania KZ Kazakhstan RS Serbia BY Belarus LT Lithuania RU Russia BA Bosnia and Herzegovina LV Latvia SI Slovenia BG Bulgaria MD Moldova SK Slovakia CZ Czech Republic ME Montenegro TR Turkey EE Estonia MK North Macedonia UA Ukraine HR Croatia PL Poland XK Kosovo HU Hungary RO Romania CESEE23 Central, East and Southeast Europe CIS4+UA Commonwealth of Independent States-4 and Ukraine EA19 Euro area EU-CEE11 European Union – Central and Eastern Europe WB6 Western Balkans