Overview

Overview

• What we have seen: achievements

Crisis less bad than feared• What we can expect:

challengesFragile, slow and varied recovery• What should be done: policies

for sustained recoveryExit strategies and structural reforms

What we have seen:

achievements

Downturn moderatedForecasted versus actual GDP growth in 2009 in EU10, EU15 and Poland, percent

Source: European Commission, Eurostat, Central Statistical Offices, World Bank staff calculations

-4.2 -4.1

1.2

-3.6-4.3

1.7

-5

-4

-3

-2

-1

0

1

2

EU10 EU15 PL

EC Forecast Autumn 2009 Actual 2009

Poland: leading the recoveryGDP growth in EU10 countries, year-on-year, percent


-25

-20

-15

-10

-5

0

5

10

15

1Q 0

7

2Q 0

7

3Q 0

7

4Q 0

7

1Q 0

8

2Q 0

8

3Q 0

8

4Q 0

8

1Q 0

9

2Q 0

9

3Q 0

9

4Q 0

9

BG

CZ

EE

LV

LT

HU

PL

RO

SI

SK

Poland: sentiment back to long-term averageEconomic sentiment indicator for EU10 countries (long term average = 100)

Source: European Commission, World Bank staff calculations

50

60

70

80

90

100

110

120

Jan-

07

Apr-

07

Jul-0

7

Oct

-07

Jan-

08

Apr-

08

Jul-0

8

Oct

-08

Jan-

09

Apr-

09

Jul-0

9

Oct

-09

Jan-

10

BG

CZ

EE

LV

LT

HU

PL

RO

SI

SK

External imbalances declined

-25

-20

-15

-10

-5

0

5

10

EU10 LV LT BG EE HU RO SI PL SK CZ

2008

2009

Current account balance as percent of GDP in 2008 and 2009

Source: Central Banks, Convergence and Stability Program Updates from January/February 2010, World Bank staff calculations

Risk appetite returnedAsset class performance, percent change

Source: Reuters, Bloomberg, World Bank staff calculationsNotes: *CDS spreads are reversed; ** for real effective exchange rates minus denotes depreciation

-150 -100 -50 0 50 100

CDS spreads*

Stocks

Credit to private sector

Exchange rates**

Pre-crisis to Trough

Trough to current

-400

Poland: risk appetite returnedAsset class performance, percent change

Source: Reuters, Bloomberg, World Bank staff calculationsNotes: *CDS spreads are reversed; ** for real effective exchange rates minus denotes depreciation

-150 -100 -50 0 50 100

CDS spreads*

Stocks

Credit to private sector

Exchange rates**

Pre-crisis to Trough

Trough to current

-520

Capital inflows rebounded

0

5

10

15

20

25

1Q 0

7

2Q 0

7

3Q 0

7

4Q 0

7

1Q 0

8

2Q 0

8

3Q 0

8

4Q 0

8

1Q 0

9

2Q 0

9

3Q 0

9

4Q 0

9

1Q 1

0

Banks

Equity

Bond

Capital inflows to EU10, USD billions

Source: World Bank staff calculations

Poland: capital inflows reboundedCapital inflows to Poland, USD billions

Source: World Bank staff calculations

0

1

2

3

4

5

6

7

8

1Q 0

7

2Q 0

7

3Q 0

7

4Q 0

7

1Q 0

8

2Q 0

8

3Q 0

8

4Q 0

8

1Q 0

9

2Q 0

9

3Q 0

9

4Q 0

9

1Q 1

0

Banks

Equity

Bond

Poland: yield curve normalizedChange in yield curve over time, percent

Source: Bloomberg, World Bank staff calculations

0

1

2

3

4

5

6

7

1M 2M 3M 6M 1Y 2Y 3Y 4Y 5Y 8Y 10Y

20Y

30Y

15.10.08

1.03.09

1.03.10

Rise in unemployment moderatedForecasted versus actual unemployment rates in 2009 in EU10, EU15, and Poland, percent


9.1 9.08.48.8

9.3

8.2

0.01.02.03.04.05.06.07.08.09.0

10.0

EU10 EU15 PL

EC Forecast Autumn 2009 Actual 2009

Lower drop in employment than in outputOutput vs. employment decline, percent

Source: Eurostat, Central Statistical Offices, World Bank staff calculations

-18-16-14-12-10

-8-6-4-2024

EU10 LV EE LT SI HU RO SK CZ BG PL

Change in output 3Q 09 - 3Q 08 (cummulated)Change in employment 3Q 09 - 3Q 08

What we can expect:

challenges

Slow recoveryGDP growth in EU10 and EU15 countries pre- and post crisis

Source: Eurostat, Convergence and Stability Program Updates from January/February 2010, IMF WEO April 2010, World Bank staff calculations

1.9 1.9

5.3 5.3 5.1 5.1

-4.0 -4.2-3.6 -3.6

1.7 1.71.2 1.0 1.6 1.5

3.0 2.72.3

1.7

3.6 3.3

4.5

3.2

-6

-4

-2

0

2

4

6

CP EU15 WEO EU15 CP EU10 WEO EU10 CP PL WEO PL

Average 2003-2008 2009 2010 2011

Varied recoveryForecasted GDP growth in EU10 countries

Source: Convergence and Stability Program Updates from January/February 2010, IMF WEO April 2010

-20

-15

-10

-5

0

5

10

WEO CP

WEO CP

WEO CP

WEO CP

WEO CP

WEO CP

WEO CP

WEO CP

WEO CP

WEO CP

LV LT EE SI RO HU SK BG CZ PL

2009 2010 2011

Domestic-based recoveryContribution to GDP growth in EU10 in 2009 and 2010

Source: Convergence and Stability Program Updates from January/February 2010

-8

-6

-4

-2

0

2

4

2009 2010 2009 2010

EU10 PL

Other

Net exports

GDP growth

Poland: public investment driven recovery…Gross fixed capital formation, percent change, year-on-year

Source: Convergence and Stability Program Updates from January/February 2010

-15

-10

-5

0

5

10

15

2008 2009 2010 2011 2012

CZ

HU

PL

SK

…supported by EU funds…

Source: European Commission, OECD Economic Survey for Poland 2010, World Bank staff

Distribution of EU funds across the EU10 countries, 2007-13

0

10

20

30

40

50

60

70

80

0

5

10

15

20

25

30

SI RO SK CZ BG LV LT EE PL HU EU10

Allocations, as a share of 2008 GDP (left axis)Allocations, absolute values, bln EUR (right axis)

…although absorption challenges remain

Source: European Commission, World Bank staff

Absorption rates of EU structural and cohesion funds across the EU10 countries, 2007-13

0

5

10

15

20

25

30

2007

-09

2010

2007

-09

2010

2007

-09

2010

2007

-09

2010

2007

-09

2010

2007

-09

2010

2007

-09

2010

2007

-09

2010

2007

-09

2010

2007

-09

2010

BG RO CZ SK HU PL SI LV EE LT

Credit-less recovery

-20

-10

0

10

20

30

40

50

60

70

80

Jan-

07

Apr-

07

Jul-0

7

Oct

-07

Jan-

08

Apr-

08

Jul-0

8

Oct

-08

Jan-

09

Apr-

09

Jul-0

9

Oct

-09

Jan-

10

BG

CZ

EE

LV

LT

HU

PL

RO

SI

SK

Credit growth to non-financial corporations, percent, year-on-year

Source: ECB, World Bank staff calculations

Jobless recoveryForecasted harmonized unemployment rates in EU10 countries

Source: Convergence and Stability Program Updates from January/February 2010, World Bank staff calculations

0

5

10

15

20

25

LV EE LT SK HU RO PL BG CZ SI

2009

2010

2011

Jobless recovery – especially for the young…Change in unemployment rate from June 2008 to January 2010 by age (%)

Source: Eurostat, World Bank staff calculations

EU15

EU10BG

CZ

EE

LV

LT

HU

PL

ROSI

SK

0

5

10

15

20

25

30

35

0 5 10 15 20 25 30 35

Chan

ge in

une

mpl

oym

ent r

ate

amon

g yo

ung

(p.p

)

Change in overall unemployment rate (p.p.)

Jobless recovery – … and less educatedChange in unemployment rate from 2Q 2008 to 3Q 2009 by education (%)


EU15

BG

CZ

EE

LVLT

HU

PLRO

SI

SK

-5

0

5

10

15

20

25

-5 0 5 10 15 20 25

Chan

ge in

une

mpl

oym

ent r

ate

amon

g le

ss

educ

ated

wor

kers

Change in overall unemployment rate (p.p.)

What should be done: policies for sustained

recovery

Financial policy: stabilizing banking system in Western Europe and maintaining exposure to EU10 region

European Banks’ 5-year CDS (bps)

Source: Bloomberg, Datastream, World Bank staff calculations

0

100

200

300

400

500

600

Jan-

08

Mar

-08

May

-08

Jul-0

8

Sep-

08

Nov-

08

Jan-

09

Mar

-09

May

-09

Jul-0

9

Sep-

09

Nov-

09

Jan-

10

Mar

-10

Raiffeisen

Deutsche Bank

Soc Generale

Unicredit

Intesa

ERSTE

SEB Bank

Monetary policy: supportive of recovery…Policy interest rates (percent)

Source: Central Banks, World Bank staff calculations

0

2

4

6

8

10

12

14

Jan-

08Fe

b-08

Mar

-08

Apr-

08M

ay-0

8Ju

n-08

Jul-0

8Au

g-08

Sep-

08O

ct-0

8No

v-08

Dec-

08Ja

n-09

Feb-

09M

ar-0

9Ap

r-09

May

-09

Jun-

09Ju

l-09

Aug-

09Se

p-09

Oct

-09

Nov-

09De

c-09

Jan-

10Fe

b-10

Mar

-10

CZ HU PLRO EURO

Monetary policy: … also to reduce appreciation pressures …Nominal exchange rates to EUR (Aug 2008=100)

Source: Reuters, World Bank staff calculations

80

90

100

110

120

130

140

150

160

Aug-

08Se

p-08

Oct

-08

Nov-

08De

c-08

Jan-

09Fe

b-09

Mar

-09

Apr-

09M

ay-0

9Ju

n-09

Jul-0

9Au

g-09

Sep-

09O

ct-0

9No

v-09

Dec-

09Ja

n-10

Feb-

10M

ar-1

0

CZ

HU

RO

PL

Monetary policy: … as long as inflation remains low

Overall HICP (percent)


-5

0

5

10

15

20

Jan-

07

Apr-

07

Jul-0

7

Oct

-07

Jan-

08

Apr-

08

Jul-0

8

Oct

-08

Jan-

09

Apr-

09

Jul-0

9

Oct

-09

Jan-

10

BG

CZ

EE

LV

LT

HU

PL

RO

SI

SK

Fiscal policy: gradual unwinding …Forecasted general government deficit in EU10 countries and EU15*


-7.1-6.5

-7.2-7.5

-5.8

-6.9

-5.8

-4.7

-5.9

-8

-7

-6

-5

-4

-3

-2

-1

0

EU15 EU10 PL

2009

2010

2011

Fiscal policy: … to keep public debt sustainable …

Forecasted general government debt in EU10 countries and EU15*


76.4

44.150.7

82.1

47.553.1

85.2

49.356.3

0

10

20

30

40

50

60

70

80

90

EU15 EU10 PL

2009

2010

2011

Fiscal policy: … through both expenditure and revenue-based consolidation …Composition of fiscal deficit reduction from 2009 to 2012, percent of GDP


-4

-2

0

2

4

6

8

EU15 EU10 LV LT RO PL SK SI CZ BG EE HU

Expenditures Revenues Fiscal deficit

Fiscal policy: … and structural adjustment …

-2

0

2

4

6

8

10

EU10 LV LT RO PL SI SK CZ BG EE HU

Cyclical component Structural primary balance Primary balance

Composition of primary deficit reduction from 2009 to 2012, percent of GDP


Fiscal policy: …moving from relaxation to tightening in spite of actual output remaining below potential…

2008 2009 2010 2011 2012Counter-cyclical tightening 2 0 0 0 0Pro-cyclical relaxation 8 0 0 0 0Counter-cyclical relaxation 0 9 1 0 1Pro-cyclical tightening 0 1 9 10 9

Cyclicality of fiscal policy, number of EU10 countries, 2008-12

Source: World Bank staff based on CP updates

Fiscal policy: … to meet Maastricht 3% deficit target

Source: European Commission

No Country Date of the Commission report

Council Decision on existence of excessive deficit

Current deadline for correction

1 Austria 7- Oct- 09 2- Dec- 09 20132 Belgium 7- Oct- 09 2- Dec- 09 20123 Czech Republic 7-Oct-09 2-Dec-09 20134 Germany 7- Oct- 09 2- Dec- 09 20135 Italy 7- Oct- 09 2- Dec- 09 20126 The Netherlands 7- Oct- 09 2- Dec- 09 20137 Portugal 7- Oct- 09 2- Dec- 09 20138 Slovenia 7-Oct-09 2-Dec-09 20139 Slovakia 7-Oct-09 2-Dec-09 201310 Poland 13-May-09 7-Jul-09 201211 Romania 13-May-09 7-Jul-09 201112 Lithuania 13-May-09 7-Jul-09 201113 Malta 13- May- 09 7- J ul- 09 201014 France 18- Feb- 09 27- Apr- 09 201315 Latvia 18-Feb-09 7-Jul-09 201216 Ireland 18- Feb- 09 27- Apr- 09 201417 Greece 18- Feb- 09 27- Apr- 09 201018 Spain 18- Feb- 09 27- Apr- 09 201319 UK 11- J un- 08 8- J ul- 08 financial year 2014/1520 Hungary 12-May-04 5-Jul-04 2011

Fiscal policy: … and join the Euro Area

Source: World Bank staff

Target date for euro adoption prior to the crisis*

Current target date for euro adoption

Bulgaria 2010 2013Czech Republic no target date no target date

Estonia 2011 2011

Hungary 2012 no target date

Latvia no target date 2014

Lithuania 2012 2014

Poland 2012 no target date

Romania 2014 2015

* Target dates announced prior to October 2008

Structural policy: answering the 1.5% question …Potential growth in 2004-07 and 2012 by EU10 member country

Source: Convergence Program Updates January/February 2010, European Commission , World Bank staff calculations.

EU10 BGCZ

EE

LV

LT

HU

PL

RO

SI

SK

0

1

2

3

4

5

6

7

0 1 2 3 4 5 6 7

2012

2004-2007

Structural policy: … requires more people in productive work and working longer …Long-term unemployed (12 months of more) as percent of active population

Source: Eurostat, World Bank staff calculations.

0

1

2

3

4

5

6

7

EU15 EU10 SK LV HU EE LT BG PL RO CZ SI

3Q 08

3Q 09

Structural policy: … also to boost competitiveness… CAB in Poland and EU10, 2009-2012, percent of GDP

Source: Convergence Program Updates 2010, IMF WEO April 2010, staff calculations.

-4.0

-3.5

-3.0

-2.5

-2.0

-1.5

-1.0

-0.5

0.0

WEO EU10 CP EU10 WEO PL CP PL

2009

2010

2011

2012

Structural policy: … to close gap to EU average living standards

0

10

20

30

40

50

60

70

80

90

100

BG RO LV LT PL EE HU SK CZ SI

2000

2008

2011

GDP per capita in purchasing power standards, EU27=100

Source: Eurostat, World Bank staff calculations.

For more information visit:www.worldbank.org/eca/[email protected]

http://www.worldbank.org/eca/eu10rer

Documents

Overview