Economic Crisis: The Way Out? An Eastern European Perspective Sándor Meisel – Krisztina Vida Institute for World Economics Research Centre for Economic and Regional Studies of the HAS Post-Crisis Economic Development of the EU and Bulgaria Sofia, October 2012

Objectives and challenges Fiscal stabilisation: government deficits government depts Reform of the systems of redistribution: sustainability Growth and convergence Competitiveness

Political conditions Relative stability –exception: RO –elections: LT and RO Living standards (GDP/cap) Employment rates Unemployment

Slow catching up with differences (GDP/cap, EU27=100%)

Low but slightly improving employment

Relatively high unemployment

Economic conditions Growth Investments FDI Foreign trade Current account balance Inflation Public finances and reforms

Improving growth expectations? (GDP growth, annual change, %)

Gross fixed capital formation (as % of GDP)

Declining FDI inflow (EUR billion)

Current account balance (as % of GDP)

Lower inflation rates: are they sustainable?

Government deficit: improving trends (as % of GDP)

Public finances: common features of the reforms Income: –increasing taxes –new taxes –improvements in tax collection –privatisation Expenditure: –streamlining the public administration –freezing (cutting) the wages in the public sector –reform of the pension and health care system –Reshaping of the social payments Changes in the level of redistribution between : –decreasing level: BG, RO, LT –same level: LV, HU, PL –increasing level: CZ, EE, SK, SI

Growing public dept (as % of GDP)

Competiveness Labour productivity per person employed Real unit labour cost Innovation ranking

Labour productivity per person: slow improvements

Real unit labour cost: favourable trends from the point of view of competition, but slow catching up of wages

Innovation performance Countries Ranking in the EU Performance PL23.Moderate innovation potential CZ17.Moderate innovation potential SK22.Moderate innovation potential HU19.Moderate innovation potential SI12.Innovation follower EE14.Innovation follower LV27.Modest innovation potential LT25.Modest innovation potential RO24.Modest innovation potential BG26.Modest innovation potential

Conclusions Crisis slowed down catching up In 2011 recovery, in 2012 more modest trends  better outlook in 2013 The pre-crisis dynamism is not likely to return Probably more balanced and sustainable growth path, depending on the external conditions Public finances on the way of slow consolidation