Looking for Shelter from the Storm Richard Grieveson Mario Holzner - - PowerPoint PPT Presentation

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

wiiw.ac.at

Looking for Shelter from the Storm

Richard Grieveson Mario Holzner Webinar, May 6th 2020 New wiiw forecast for Central, East and Southeast Europe, 2020-2021

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• 1. Global overview and assumptions
• 2. New wiiw forecasts for Eastern Europe
• 3. Tracking COVID-19 cases and deaths in Eastern Europe
• 4. Initial economic impact
• 5. Areas of resilience and vulnerability
• 6. How this crisis will change Eastern Europe in the medium and long term

Overview

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• 1. Global overview: Worst crisis since the 1930s

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Source: IMF April WEO.

Real GDP growth, %

Global overview: Worst crisis since the 1930s

• 10
• 8
• 6
• 4
• 2

2 4 6 8 10 Austria Germany Italy US China 2009 2020 2021

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• 2. New wiiw forecasts for CESEE

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Note: Current forecast and revisions relative to the wiiw Spring forecast 2020. Colour scale variation from the minimum (red) to the maximum (green). Source: wiiw forecast.

New wiiw real GDP forecasts and revisions

2019 2020 2021 2019 2020 2021 BG 3.4

• 6.3

1.7

• 0.1
• 9.1
• 0.6

CZ 2.6

• 4.8

2.5 0.2

• 7.0

0.1 EE 4.3

• 7.0

4.0 0.4

• 9.7

1.4 HR 2.9

• 11.0

4.0

• 0.1
• 13.7

1.3 HU 4.9

• 5.5

2.0 0.0

• 8.8
• 0.6

LT 3.9

• 6.5

4.3 0.0

• 9.3

1.7 LV 2.2

• 8.0

4.5 0.0

• 10.0

2.2 PL 4.1

• 4.0

3.0 0.1

• 7.6
• 0.3

RO 4.1

• 7.0

3.0 0.0

• 10.2

0.2 SI 2.4

• 9.5

4.0

• 0.2
• 12.1

1.3 SK 2.3

• 9.0

4.6 0.0

• 11.0

2.2 AL 2.2

• 5.0

3.8

• 0.4
• 8.2

0.4 BA 2.6

• 5.0

3.0

• 0.1
• 7.5

0.2 ME 3.6

• 8.0

5.0 0.3

• 10.8

2.1 MK 3.6

• 5.0

4.0 0.2

• 8.3

0.7 RS 4.2

• 4.0

4.0 0.2

• 7.7

0.5 XK 4.2

• 4.4

4.0 0.1

• 8.7
• 0.2

Turkey TR 0.9

• 6.0

5.5 0.4

• 9.9

1.4 BY 1.2

• 5.3
• 0.7

0.0

• 6.3
• 2.0

KZ 4.5

• 3.0

2.0 0.0

• 6.7
• 1.8

MD 3.6

• 3.0

3.0

• 1.0
• 7.0
• 1.0

RU 1.3

• 7.0

1.5 0.0

• 9.1
• 0.8

UA 3.2

• 6.0

2.5

• 0.1
• 9.6
• 1.7

Forecast, % Revisions, pp EU-CEE11 WB6 CIS4+UA

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New forecasts: main messages

• Most countries facing worst recessions since early 1990s.
• Biggest 2020 declines: Croatia, Montenegro, Slovenia, Slovakia, Latvia –

major dependence on trade/tourism is a liability this year.

• Smallest 2020 declines: Poland, Serbia, Kosovo, Moldova, Kazakhstan –

bigger fiscal resources, less trade dependence, agriculture.

• Major declines for Russia and Turkey, but latter will bounce back much more

quickly than former.

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• 3. Tracking cases and deaths in CESEE

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Death rate in Eastern Europe has been dramatically lower than Western Europe

Source: Worldometer. Updated end-April 2020. 50 100 150 200 250 300 350 400 450 500 S p a i n I t a l y F r a n c e U K G e r m a n y A u s t r i a S l

• v

e n i a E s t

• n

i a R

• m

a n i a H u n g a r y N

• r

t h M a c e d

• n

i a M

• l

d

• v

a C z e c h R e p u b l i c S e r b i a B i H L i t h u a n i a P

• l

a n d C r

• a

t i a G r e e c e M

• n

t e n e g r

• A

l b a n i a B u l g a r i a B e l a r u s L a t v i a R u s s i a U k r a i n e S l

• v

a k i a

Deaths per 1m population

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Eastern European countries imposed major restrictions at a much lower level of confirmed cases

Source: Blavatnik School of Government, Oxford University.

Stringency index and number of confirmed cases, March 15th 2020

10 20 30 40 50 60 70 80 90 100 1000 2000 3000 4000 5000 6000 Stringency index Number of confirmed cases

Spain France US UK Albania and Kosovo Poland Bulgaria, Romania, Slovakia, Ukraine

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• 4. Initial impact

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Manufacturing PMIs at or close to all-time lows across Europe in April

Source: IHS Markit.

Manufacturing purchasing managers’ indices (PMIs); 50 = no change

5 10 15 20 25 30 35 40 45 50 Euro area Czech Republic Poland Turkey Kazakhstan Russia March April

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Lockdowns have had severe impact on normal economic life

Source: google. Average of data for grocery/pharmacy, retail/recreation and workplace activity

Google mobility data, change versus baseline (%), mid-April

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• 60
• 50
• 40
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BY LV TR CZ HU EE LT SK PL MK MD HR SI BA BG KZ RO SE AT IT

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• 5. Factors of resilience and vulnerability

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5.a. Trade and tourism dependence leaves some countries particularly exposed to initial fallout

Sources: World Bank, national sources, wiiw.

Exposure to external trade, tourism and travel services

5 10 15 20 25 30 20 40 60 80 100 120 140 160 180 200 Travel and tourism, % of GDP External trade, % of GDP

Least exposed Most exposed Albania Croatia Montenegro Estonia Slovenia Hungary Slovakia Russia Kazakhstan Turkey Moldova Romania Ukraine Poland Bosnia Serbia

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5.b. Fiscal space to react and room to recover differs widely across the region

Sources: Moody’s, Fitch, S&P. Average of available ratings.

Average credit rating; 1 (prime) to 7 (substantial risks)

1 2 3 4 5 6 7 C z e c h R e p u b l i c E s t

• n

i a L a t v i a L i t h u a n i a P

• l

a n d S l

• v

a k i a S l

• v

e n i a B u l g a r i a H u n g a r y K a z a k h s t a n R

• m

a n i a R u s s i a C r

• a

t i a N

• r

t h M a c e d

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i a S e r b i a T u r k e y A l b a n i a B e l a r u s B i H M

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d

• v

a M

• n

t e n e g r

• U

k r a i n e S w e d e n A u s t r i a S p a i n I t a l y

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5.c. Weak healthcare capacity required lockdowns at lower level of infections and could influence recovery

Source: World Bank. Data for 2016.

Public healthcare spending per capita, PPP, Austria = 100

10 20 30 40 50 60 M

• l

d

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a U k r a i n e K a z a k h s t a n A l b a n i a N

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t h M a c e d

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i a S e r b i a B e l a r u s R u s s i a B i H B u l g a r i a T u r k e y L a t v i a R

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a n i a P

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a n d H u n g a r y L i t h u a n i a C r

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t i a E s t

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i a S l

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a k i a S l

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e n i a C z e c h R e p u b l i c

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5.d. Reliance on capital flows a major area of exposure for much of Western Balkans, Moldova and Ukraine

Sources: World Bank, national sources, wiiw.

Selected capital inflows, % of GDP, average of last five available years

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• 5

5 10 15 20 25 30 35 S l

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e n i a R u s s i a H u n g a r y E s t

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i a B u l g a r i a L i t h u a n i a T u r k e y P

• l

a n d C r

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t i a K a z a k h s t a n R

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a n i a L a t v i a B e l a r u s S l

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a k i a N

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t h M a c e d

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i a C z e c h R e p u b l i c U k r a i n e S e r b i a B i H A l b a n i a K

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• M
• l

d

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a M

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t e n e g r

• Personal remittances received

Net FDI inflows Net hot money inflows

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• 6. First thoughts on the medium and long-term

implications

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• 1. Consumer caution could outlast acute phase of crisis.
• 2. Interest rates and inflation lower for longer.
• 3. Higher (and maybe more progressive) taxes.
• 4. A bigger role for the state in economic life.
• 5. Opportunities from near-shoring, services out-sourcing and digitalisation.
• 6. After a pause, labour shortages and automation will return.
• 7. Ever greater gulf within Eastern Europe.
• 8. China’s economic role in the region will remain important.

The next decade in Eastern Europe

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• Worst year for global economy since 1930s.
• Many CESEE countries face worst recession since early 1990s.
• Short-term: those with major trade and tourism exposure will suffer most.
• But advantages for those with better healthcare and bigger fiscal capacity.
• Many will face difficulties with sharp reduction in capital flows, and are going

to need outside help.

• Longer-term: A lot of things are going to change.
• Negative: Consumer caution, higher debt, non-EU falling further

behind.

• Positive: Near-shoring, outsourcing of services, digitalisation, further

automation.

Conclusions

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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!

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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

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

www.wiiw.ac.at

Extra slides

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Source: IMF April WEO.

• Second/third wave
• Delayed vaccine
• Limits on US response after election
• Greater international tensions
• Bad policy decisions in major economies
• Social unrest in systemically important country/countries
• Food shortages and sharp increase in prices
• New euro area crisis centred on Italy

Negative scenario