From Crisis to Recovery Florian Fichtl, Country Manager World Bank October 19, 2009

Recovery underway Industry has stopped shrinking Europe & Central Asia Middle-East & North Africa East Asia & Pacific South Asia Europe & Central Asia

Recovery underway Interest rates are lower Emerging-market bond spreads have fallen but remain higher than pre-crisis levels Source: World Bank, DEC Prospects Group

…but private sector funding depressed Syndicated bank loans by borrower type (2009 q3 as of Aug. 25) 4

NMS affected severely by the crisis Source: Eurostat

Tough times ahead for governments Rapidly falling revenues Rising social expenditures and pension debt Source: IMF World Economic Outlook

Tough times for households and businesses Unemployment will recover slowly Difficulties in repaying bank credit Number of vulnerable household increase Rising insolvencies Difficult access to credit

Tough times for banks Can no longer rely on large capital flows from abroad Non-performing loans are rising Profits decline Domestic credit (percentage change, year-on-year)

The way ahead Return to growth might take longer in the region than in the rest of the EU This means smaller budgets for governments—need to restructure spending to support the vulnerable and growth enhancing activities Continued attention to financial sector stability—lower access to credit and rising NPLs Structural transformation of economy will depend on further improvements in product and labor markets.