1. Wiener Institut für Internationale Wirtschaftsvergleiche The Vienna Institute for International Economic Studies www.wiiw.ac.at Wirtschaftskrise in Osteuropa Michael Landesmann

2. wiiw 2 wiiw Spring Seminar, 27 March 2009 Fragile Europe: the Path in and out of the Crisis – What Is to be Done? Die Wirtschaftskrise in Osteuropa Krise in Emerging Markets Warum sich die Krise auf Osteuropa erstreckt hat? Gibt es Differenzierungen? Wirtschaftspolitische Moeglichkeiten

3. wiiw 3 wiiw Spring Seminar, 27 March 2009 Fragile Europe: the Path in and out of the Crisis – What Is to be Done? Industrieproduktion, 2007-2009 moving 3-month average, annual growth in % Source: wiiw Monthly Database.

4. wiiw 4 wiiw Spring Seminar, 27 March 2009 Fragile Europe: the Path in and out of the Crisis – What Is to be Done? Exporte (goods), 2006-2009 EUR-based, Jan 2006 = 100 Source: wiiw Monthly Database.

5. wiiw 5 wiiw Spring Seminar, 27 March 2009 Fragile Europe: the Path in and out of the Crisis – What Is to be Done? Wechselkurse*, 2006-2010 EUR per NCU, end of period, Jan 2006 = 100 *An increasing line indicates appreciation. Source: wiiw Monthly Database. Mar-09Jun-09Mar-10

6. wiiw 6 wiiw Spring Seminar, 27 March 2009 Fragile Europe: the Path in and out of the Crisis – What Is to be Done? (Nominal) exchange rate developments against the Eur, 2 January – 14 November 2008

7. wiiw 7 wiiw Spring Seminar, 27 March 2009 Fragile Europe: the Path in and out of the Crisis – What Is to be Done? Zinssatzentwicklungen, three-months inter-bank rates, 2 January – 14 November 2008

8. wiiw 8 wiiw Spring Seminar, 27 March 2009 Fragile Europe: the Path in and out of the Crisis – What Is to be Done? 1993-2000 2001-2007 2002-2008 1996-2001 Source: Eurostat. Wachstum – BIP pro Kopf zu KKP annual averages 1996-2001 and 2002-2008, in per cent

9. wiiw 9 wiiw Spring Seminar, 27 March 2009 Fragile Europe: the Path in and out of the Crisis – What Is to be Done? Arbeitslosigkeitsraten in %, annual average Source: wiiw Database incorporating national statistics, LFS.

10. wiiw 10 wiiw Spring Seminar, 27 March 2009 Fragile Europe: the Path in and out of the Crisis – What Is to be Done? Arbeitslosigkeitsraten, 2007-2009 registration data, in % Source: wiiw Monthly Database, AMS.

11. wiiw 11 wiiw Spring Seminar, 27 March 2009 Fragile Europe: the Path in and out of the Crisis – What Is to be Done? Budgetdefizite, 1998-2008 in % of GDP Source: Eurostat.

12. wiiw 12 wiiw Spring Seminar, 27 March 2009 Fragile Europe: the Path in and out of the Crisis – What Is to be Done? Leistungsbilanz in % of GDP, 1996-2008 Source: wiiw Database incorporating national statistics.

13. wiiw 13 wiiw Spring Seminar, 27 March 2009 Fragile Europe: the Path in and out of the Crisis – What Is to be Done? -24.0 -21.0 -18.0 -15.0 -12.0 -9.0 -6.0 -3.0 -30.0-25.0-20.0-15.0-10.0-5.0 Bulgaria Romania Lithuania Estonia Latvia Slovakia Hungary Poland Slovenia Czech R. y x x : Current account in % of GDP, 2007 y : GDP growth in %, decline 2007-2009 BIP Wachstum und Leistungsbilanzdefizit Source: wiiw Annual Database incorporating national statistics, Eurostat.

14. wiiw 14 wiiw Spring Seminar, 27 March 2009 Fragile Europe: the Path in and out of the Crisis – What Is to be Done? Leistunsbilanzdefizit und CDS (Credit Default Swaps)

15. wiiw 15 wiiw Spring Seminar, 27 March 2009 Fragile Europe: the Path in and out of the Crisis – What Is to be Done? Unterschiede zwischen fixen und flexiblen Wechselkursregimen – large capital inflows and extension of external balance sheets Source: wiiw Database incorporating national statistics, Eurostat.

16. wiiw 16 wiiw Spring Seminar, 27 March 2009 Fragile Europe: the Path in and out of the Crisis – What Is to be Done? Hohe Leistungsbilanzdefizite in Laendern mit fixen Wechselkursregimen - balance on current account (in % of GDP) Source: wiiw Database incorporating national statistics, Eurostat.

17. wiiw 17 wiiw Spring Seminar, 27 March 2009 Fragile Europe: the Path in and out of the Crisis – What Is to be Done? 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 200220032004200520062007H1-08 Bulgaria Estonia Latvia Lithuania 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 200220032004200520062007H1-08 Czech Republic Hungary Poland Slovakia Romania Kreditwachstum des privaten Sektors Domestic credit growth (in % of GDP)

18. wiiw 18 wiiw Spring Seminar, 27 March 2009 Fragile Europe: the Path in and out of the Crisis – What Is to be Done? Ukraine - Wachstumsraten, 2004-2008 quarterly, year-on-year change in % Source: wiiw Database incorporating national statistics.

19. wiiw 19 wiiw Spring Seminar, 27 March 2009 Fragile Europe: the Path in and out of the Crisis – What Is to be Done? Stahlpreis und Industrieproduktion Source: wiiw Monthly Database incorporating national statistics and CRU steel price index.

20. wiiw 20 wiiw Spring Seminar, 27 March 2009 Fragile Europe: the Path in and out of the Crisis – What Is to be Done? Welche Krise? Contagion, capital accounts crisis, devaluations Laenge der Krise? Laenger-fristige Auswirkungen?

21. wiiw 21 wiiw Spring Seminar, 27 March 2009 Fragile Europe: the Path in and out of the Crisis – What Is to be Done? Der Weg aus der Krise – was sollte gemacht werden? Policy reactions and policy challenges: same challenges as in more advanced economies (but often in worse circumstances): stabilize financial system; adjust to new capital accounts situation; avoid exchange rate over-shooting; attempt anti-cyclical fiscal measures; intensify labour market policies Policy support from outside (EU, EU partners, IFIs) is vital!

22. wiiw 22 wiiw Spring Seminar, 27 March 2009 Fragile Europe: the Path in and out of the Crisis – What Is to be Done? Anti-crisis policies Budget deficit/GDP on the rise due to lower revenues and rigid expenditures, more expensive deficit financing Limited scope for fiscal stimulus -Modest demand stimulation: Slovakia, Slovenia, Czech Republic -Neutral fiscal policy, but expenditure shifts to SMEs, public investments: Bulgaria, Poland, Romania -Pro-cyclical policy, but revenues and expenditures shift: Baltics, Hungary Monetary policy: limited expansion (lower policy rate, lower reserve ratio) Differences by exchange rate regimes -Eurozone: Slovenia, Slovakia – competitiveness problem -Fixed in Baltics, Bulgaria – adjustment through cost reduction; managed devaluation? -Flexible in the Czech R., Poland, Romania, Hungary – adjustment also by depreciation Intention to join Eurozone soon to gain stability: Poland, Hungary, Bulgaria, Romania

23. wiiw 23 wiiw Spring Seminar, 27 March 2009 Fragile Europe: the Path in and out of the Crisis – What Is to be Done? Longer-term outlook 2010, 2011 recovery depends on global (European) prospects External financing, especially loans remain scarce and expensive Need for domestic savings to finance investments EU transfers increase, more in 2010 and beyond FDI inflows shrink to half Cost competitiveness may attract relocation