Mario Holzner Olga Pindyuk Overview 1. Changes to the wiiw Forecast - - PowerPoint PPT Presentation

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Mario Holzner Olga Pindyuk Overview 1. Changes to the wiiw Forecast - - PowerPoint PPT Presentation

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Wiener Institut fr The Vienna Institute for wiiw.ac.at Internationale International Economic Wirtschaftsvergleiche Studies Press conference, 7 November 2018 New wiiw forecast for Central, East and Southeast Europe, 2018-2020 Robust growth

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

wiiw.ac.at

Robust growth in the face of increased negative risks Richard Grieveson Mario Holzner Olga Pindyuk

Press conference, 7 November 2018 New wiiw forecast for Central, East and Southeast Europe, 2018-2020

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Overview

  • 1. Changes to the wiiw Forecast Report
  • 2. Global and eurozone overview
  • 3. New forecasts for CESEE 2018-20
  • 4. Main drivers of growth
  • 5. Risks to the outlook
  • 6. Conclusions
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  • 1. Global and eurozone backdrop: multiple headwinds

weighing on growth

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Source: IMF World Economic Outlook, October 2018.

Real GDP growth, % per year, major economies

Global growth still reasonably robust – IMF forecasts around 3.7% this year and next (same as 2017)

1 2 3 4 5 6 7 8 Japan Eurozone US World China 2017 2018 2019

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* Q3 data for Germany not yet available. Source: Eurostat.

But significant headwinds for CESEE: trade tensions, eurozone + China slowdown, higher US rates

Eurozone real GDP, seasonally adjusted, % change quarter on quarter

  • 0.4
  • 0.2

0.2 0.4 0.6 0.8 1 1.2 2016Q1 2016Q2 2016Q3 2016Q4 2017Q1 2017Q2 2017Q3 2017Q4 2018Q1 2018Q2 2018Q3 Eurozone Germany* France Italy

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  • 2. New forecasts for CESEE in 2018-20
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Source: wiiw Monthly Database incorporating national and Eurostat statistics, own calculation.

Quarterly real GDP growth, change in % against preceding year

Growth still healthy in most of the region

  • 6
  • 4
  • 2

2 4 6 8 10 12 14 1Q 11 3Q 11 1Q 12 3Q 12 1Q 13 3Q 13 1Q 14 3Q 14 1Q 15 3Q 15 1Q 16 3Q 16 1Q 17 3Q 17 1Q 18 2Q 18 EU-CEE-11 WB-6 Turkey CIS + Ukraine

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Note: Current forecast and revisions relative to the wiiw Summer Forecast 2018. Colour scale variation from the minimum (red) to the maximum (green). Source: wiiw Autumn 2018 Forecast Report.

wiiw real GDP growth forecasts

Most of the region at/past the peak

2018 2019 2020 2018 2019 2020 BG 3.3 3.2 3.0

  • 0.2
  • 0.2
  • 0.1

CZ 3.3 3.2 3.1

  • 0.4
  • 0.1
  • 0.1

EE 3.5 3.1 2.7 0.0 0.0

  • 0.3

HR 2.5 2.6 2.7 0.0

  • 0.1
  • 0.1

HU 4.3 3.0 2.3 0.3 0.2

  • 0.1

LT 3.5 3.0 2.6 0.2 0.0 0.0 LV 4.1 3.3 3.0 0.2

  • 0.3
  • 0.1

PL 5.0 3.5 3.3 1.2 0.0 0.0 RO 3.8 3.6 3.7

  • 0.4

0.1

  • 0.1

SI 4.5 3.6 3.5

  • 0.3
  • 0.1
  • 0.1

SK 3.8 4.1 3.3 0.0

  • 0.1

0.0 AL 4.1 4.0 4.0 0.3

  • 0.1

0.0 BA 3.0 3.4 3.4

  • 0.3

0.1 0.1 ME 4.2 3.1 3.1 1.0

  • 0.1

0.1 MK 2.9 2.8 3.1

  • 0.6
  • 0.3
  • 0.2

RS 4.3 3.4 2.8 0.7 0.4 0.0 XK 4.2 4.0 4.2 0.3 0.2 0.4 Turkey TR 2.5 1.0 4.0

  • 2.0
  • 3.1

0.0 BY 3.7 3.0 2.8

  • 0.3
  • 0.7
  • 0.6

KZ 4.0 3.1 3.0 0.0 0.1 0.0 RU 1.7 1.6 1.8 0.2 0.0 0.1 UA 3.3 2.7 2.0 0.0

  • 0.4

0.0 Forecast, % Revisions, pp EU-CEE Western Balkan CIS+UA

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Source: wiiw Annual Database incorporating national and Eurostat statistics, own calculation.

Annual real GDP growth, % change against preceding year Current account balance, % of GDP

What is wrong with Russia and Turkey?

  • 10
  • 5

5 10 15 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 TR GDP RU GDP TR current account RU current account

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  • 3. Main drivers of growth
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Note: Data for 2018 are an average of first two quarters. Source: Eurostat.

Strong wage growth supporting private consumption

Job vacancy rate, %

1 2 3 4 5 6 2013 2014 2015 2016 2017 2018 CZ HU PL SI SK DE

Average monthly gross wages, real change in % against preceding year

Source: wiiw Annual Database incorporating national and Eurostat statistics.

  • 10
  • 8
  • 6
  • 4
  • 2

2 4 6 8 2015 2016 2017 2018 PL RS TR RU

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* EU-CEE excl. Visegrád. Note: Simple averages for country aggregates. Source: Eurostat statistics.

Capacity constraints spurring investment

Capacity utilisation, % seasonally adjusted

Source: wiiw Annual Database incorporating national and Eurostat statistics.

Real GFCF change in % against preceding year

  • 12
  • 10
  • 8
  • 6
  • 4
  • 2

2 4 6 8 10 2015 2016 2017 2018

  • ther EU-CEE

Visegrád WB CIS + UA 60 65 70 75 80 85 90 1Q 13 1Q 14 1Q 15 1Q 16 1Q 17 1Q 18 DE

  • ther EU-CEE*

Visegrád WB

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Note: Simple averages for country aggregates. WB excluding XK, CIS excluding BY. Source: wiiw Monthly Database incorporating national and Eurostat statistics.

Export growth slowing down amid weakening external environment

Exports of goods (customs statistics) growth, %, 4-quarter moving average

2 4 6 8 10 12 14 16 18 20 1Q 13 1Q 14 1Q 15 1Q 16 1Q 17 1Q 18 Visegrad Other EU-CEE WB

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Note: Simple averages for country aggregates. Source: wiiw Annual Database incorporating national and Eurostat statistics.

Exports of goods and services, % of GDP

Visegrád countries and Baltics are most exposed to global demand decline

10 20 30 40 50 60 70 80 90 TR WB CIS+UA HR, SI, BG, RO Baltics Visegrad 2000 2008 2017

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Note: Simple averages for country aggregates. WB excluding XK, CIS excluding BY. Source: wiiw Monthly Database incorporating national statistics.

Credit growth, % year on year

Credit cycle is firming, in particular for households

  • 15
  • 10
  • 5

5 10 15 20 25 Jan-10 Jan-12 Jan-14 Jan-16 Jan-18

Non-financial corporations

EU-CEE WB CIS + UA

  • 15
  • 10
  • 5

5 10 15 20 25 Jan-10 Jan-12 Jan-14 Jan-16 Jan-18

Households

EU-CEE WB CIS + UA

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Note: Number of standard deviations from historical mean, average of 11 indicators. Sources: wiiw Monthly Database incorporating national statistics and Eurostat; BIS.

wiiw business cycle index

CESEE overheating risks subside

  • 1.0
  • 0.5

0.0 0.5 1.0 1.5 2.0 RU RS UA KZ BG BA PL AL HR TR LV SI MK EE LT SK RO HU ME CZ 4Q 2007 2Q 2018

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Notes: CPI: consumer price index, CA: current account, RER: real exchange rate (EUR) CPI deflated, RIR: real interest rate CPI deflated. Source: wiiw business cycle index, incorporating wiiw Monthly Database, national statistics, Eurostat, BIS.

Number of countries in CESEE showing overheating or underheating by indicator, Q2 2018

Main potential sources of risk are tight labour markets, low/negative real interest rates, and high property prices

2 4 6 8 10 12 14 16 18 Overheating Underheating

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Note: Core inflation (HICP/COICOP), overall index excluding energy. Simple averages for country aggregates. WB excluding XK, CIS excluding BY. Source: Eurostat and national statistics.

Core inflation, % change year on year

Concerns about overheating are soothed by relative lack

  • f inflation

1 2 3 4 5 6 7 1Q 12 3Q 12 1Q 13 3Q 13 1Q 14 3Q 14 1Q 15 3Q 15 1Q 16 3Q 16 1Q 17 3Q 17 1Q 18 3Q 18 EU-CEE WB 2 4 6 8 10 12 14 1Q 12 3Q 12 1Q 13 3Q 13 1Q 14 3Q 14 1Q 15 3Q 15 1Q 16 3Q 16 1Q 17 3Q 17 1Q 18 3Q 18 CIS + UA TR

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Source: Eurostat.

Gross household savings rate, %

Why is inflation not higher? (1) Increasing savings rates reduce wage pass-through

  • 25
  • 20
  • 15
  • 10
  • 5

5 10 15 20 AT BG CZ EE LV LT HU PL SI SK 2007 2012 2016

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Source: World Bank Migration and Remittances Data, wiiw Annual Database.

Migrant remittance outflows, % of GDP

Why is inflation not higher? (2) Growing remittance outflows

0.0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 CZ PL HU SI SK 2013 2014 2015 2016

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Source: wiiw Annual Database incorporating national statistics and Eurostat.

Recent pace of convergence has been strong for most, but will slow from here

Percentage-point change in real per capita GDP (PPP) level versus Austria between 2012 and 2017

  • 8
  • 6
  • 4
  • 2

2 4 6 8 10 RU BY UA AL RS XK HR SK MK KZ BA HU SI PL BG EE CZ ME TR LV RO LT

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  • 4. Risks to the outlook: Watch out for trade war, eurozone

crisis and next EU budget

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Source: wiiw.

wiiw CESEE risk matrix October 2018

Impact on CESEE countries High Medium Low Likelihood High Global trade war Smaller EU budget (only EU-CEE countries) No eurozone reform Rule of law and institutions deteriorate further Medium Labour shortages stimulate higher investment Low Formalised core/periphery in EU (only EU-CEE countries) EM crisis affects more countries in CESEE Faster-than-expected ECB tightening Hard/no deal Brexit Improvement in EU-Russia relations

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Sources: YouGov, Der Spiegel, investing.com, wiiw.

  • A. Eurozone does not reform and new crisis breaks out

German opinion poll, Oct 2017, %

5 10 15 20 25 30 35 40 45 50

Common eurozone budget Eurozone finance minister

For Against 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Germany Italy Spread

10-year bond yields, %

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Sources: Global Trade Alert, World Bank.

  • B. Wider trade war (1):

It has already started

Share of imports to US subject to ‚harmful‘ trade restrictions, by exporter, % Exports of goods and services, % of GDP

10 20 30 40 50 60 70 2009 2010 2011 2012 2013 2014 2015 2016 2017 Turkey EU China Russia 5 10 15 20 25 30 35 40 45 50 1980 1984 1988 1992 1996 2000 2004 2008 2012 2016 World China EU

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Sources: wiiw, World Bank.

  • B. Wider trade war (2):

Region’s economies are mostly very open

Exports of goods and services, % of GDP, 2017 (or latest available)

10 20 30 40 50 60 70 80 US JP CN TR FR IT WB-6 CIS + UA DE EU-CEE

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Source: Eurostat.

  • C. Smaller post-Brexit EU budget

(and increased conditionality)

Operating budget balance with the EU, % of GNI, 2016

  • 1

1 2 3 4 FR BE DE AT UK DK SE FI IT NL LU IE CY ES SI PT HR MT PL CZ LV EE EL SK LT HU RO BG

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Source: World Bank. Indicators measured in range from 2.5 (best) to -2.5 (worst).

  • D. Continued decline in quality/independence of

institutions and rule of law

  • 0.4
  • 0.3
  • 0.2
  • 0.1

0.0 CZ PL RU RO TR HU

Change in World Bank Governance Indicators, 2010-2017, regulatory quality (left) and rule of law (right)

  • 0.4
  • 0.3
  • 0.2
  • 0.1

0.0 0.1 0.2 0.3 0.4 RO CZ RU PL HU TR

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Sources: Eurostat, IFR World Robotics projections.

  • E. Labour shortages stimulate higher investment

1 2 3 4 5 6 1Q 10 1Q 11 1Q 12 1Q 13 1Q 14 1Q 15 1Q 16 1Q 17 1Q 18 Czech Republic Hungary Poland Slovakia

Job vacancy rate in manufacturing, 10 employees or more, %

5 10 15 20 25

% increase in imports of multipurpose industrial robots, 2018-2020

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  • 5. Conclusions
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  • Across most of the region, growth will still be quite strong …
  • … but it will slow during forecast period amid weakening external

environment.

  • Downside risks to growth are increasing.
  • Tight labour markets will push up wages (and consumption).
  • High levels of capacity utilisation will spur increases in investment.
  • Turkey should bounce back by end-2019.
  • Russia faces a low-growth future due to structural issues.

Conclusions

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  • 6. wiiw Handbook of Statistics
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New edition 2018

336 pages incl. 250 tables, 15 maps and 6 graphs

Available from December PDF, Excel from 26 November

  • Comparable indicators for

CESEE-22 countries

  • Most recent structural data on

Gross value added Gross investment Employment Wages Foreign direct investment Foreign trade Balance of payments

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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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