1. Wiener Institut für Internationale Wirtschaftsvergleiche The Vienna Institute for International Economic Studies www.wiiw.ac.at The Balkans: Problems and Prospects Vladimir Gligorov Brussels, December 9

2. Wiener Institut für Internationale Wirtschaftsvergleiche The Vienna Institute for International Economic Studies www.wiiw.ac.at Contents Growth and external imbalances Effects of crisis Growth prospects Regional and EU integration

3. wiiw 3 GDP per capita, 2008 EUR at PPPs Source: wiiw Annual Database incorporating national statistics.

4. wiiw 4 Real GDP growth in CEE and SEE, 2000 = 100 Note: * PCC-4:AL,BA,ME,RS. **CC-2: HR, MK. Source: wiiw Annual Database incorporating national statistics.

5. wiiw 5 FDI stock, per capita, in NMS and SEEC, 2000-2008, EUR Source: wiiw Annual Database incorporating national statistics.

6. wiiw 6 FDI stock, per capita, in NMS and SEEC, 2000-2008, EUR Source: wiiw Annual Database incorporating national statistics.

7. wiiw 7 Industrial production, 2008 Note: Until 1998 data refer to Serbia and Montenegro. Source: wiiw Annual Database incorporating national statistics.

8. wiiw 8 Exports of goods and services (BOP) in % of GDP Source: wiiw Annual Database incorporating national statistics.

9. wiiw 9 Exports in NMS and SEE, EUR mn Note: Data refer to sum over available data Source: wiiw Annual Database incorporating national statistics.

10. wiiw 10 Exports of goods and services (BOP) in % of GDP Source: wiiw Annual Database incorporating national statistics. 20042005200620072008 Bulgaria56.659.564.263.260.3 Romania35.833.032.329.230.9 Croatia43.542.843.542.841.9 Macedonia39.544.046.852.451.8 Albania22.022.824.928.029.1 Boania and Herzegovina29.433.036.737.336.8 Montenegro42.043.649.643.438.1 Serbia23.426.129.729.528.5

11. wiiw 11 Technology-driven industries, as % of total manufacturing exports to the EU Source: Comext.

12. wiiw 12 Low-skill industries, as % of total manufacturing exports to the EU Source: Comext.

13. wiiw 13 Labour-intensive industries, as % of total manufacturing exports to the EU Source: Comext.

14. wiiw 14 Trade balances of goods and services and income balances 2000-2008, in % of GDP Source: wiiw Annual Database incorporating national statistics, Eurostat. CZHUPLSKSIHRRS

15. wiiw 15 Trade balances of goods and services and income balances 2000-2008, in % of GDP Source: Eurostat. BGROEELTLVTRUA

16. wiiw 16 Trade balance (commodities) in % of GDP in SEE and CEE Source: wiiw Annual Database incorporating national statistics.

17. wiiw 17 Current account in % of GDP in SEE and CEE Source: wiiw Annual Database incorporating national statistics.

18. wiiw 18 Private transfers in SEE in % of GDP Source: wiiw Annual Database incorporating national statistics.

19. wiiw 19 Components of the Balance of Payments in % of GDP, 2008 Source: National banks of respective countries. CroatiaMacedoniaAlbania Bosnia & Herzegovina MontenegroSerbiaBulgariaRomania Current account-9.4-13.1-14.7-14.9-30.1-13.9-25.4-12.2 a) Trade balance, net-22.9-26.7-27.1-38.1-44.6-20.2-25.2-13.4 Exports of goods20.641.310.227.915.520.744.624.5 Imports of goods-43.5-68.0-37.4-66.0-60.1-40.9-69.8-37.9 b) Services, net14.70.00.85.412.1-0.32.30.6 1. Transport, net1.1-0.9-1.10.3.. 0.0 2. Travel, net14.11.01.33.3..2.7-0.1 3. Other, net-0.5-0.10.61.8..-0.70.7 c) Income, net-3.3-1.41.23.20.2-2.1-3.9-3.8 1. Compensation of employees, net1.21.41.94.4..4.20.8 2. Investment income, net-4.5-2.9-0.7-1.1..-8.1-4.6 d) Current transfers, net2.215.010.514.62.28.81.54.4 1. General government, net-0.10.70.41.3..0.30.6 1. Other sectors, net2.314.310.113.3..1.23.7 Private transfers, EUR mn1342128610861851..7206576 Private transfers, % GDP2.819.812.114.6..2.14.8 Private transfers, per capita303628342482..94306

20. wiiw 20 Gross external debt in % of GDP Source: wiiw Annual Database incorporating national statistics.

21. wiiw 21 Gross external debt in % of exports of goods and services (BOP) Source: wiiw Annual Database incorporating national statistics.

22. wiiw 22 General government budget balance, in % of GDP Source: wiiw Annual Database incorporating national statistics.

23. wiiw 23 Labour market indicators 2008 LFS, in % average Employment rateUnemployment rate Albania53.813.1 Bosnia and Herzegovina33.623.4 Croatia44.48.4 Macedonia37.333.8 Montenegro42.317.2 Serbia44.413.6 Bulgaria50.85.6 Romania51.45.8 Source: wiiw Annual Database incorporating national statistics.

24. wiiw 24 Unemployment rates, 2007-2009 in %, annual average, LFS Source: wiiw Database.

25. wiiw 25 The main problem Weak tradeable sector External imbalances Low domestic savings

26. wiiw 26 GDP growth rates, 2005-2010 year-on-year, growth in % Source: wiiw Annual Database incorporating national statistics.

27. wiiw 27 Industrial production growth, 2005-2010 year-on-year, growth in % Source: wiiw Annual Database incorporating national statistics.

28. wiiw 28 201120102009 1-2Q 2008 1-2Q 20082007 2 2 1 5 1.0-3.5-4.17.65.46.9Serbia -3.0-3.5.8.110.7Montenegro -3.0..5.46.0Bosnia & H. 3.01.55.46.78.06.2Albania 2 2 0-2.0-1.26.24.95.9Macedonia 0.0-5.5-6.53.92.45.5Croatia wiiw forecasts 3 2.6 -6.0-3.57.06.06.2Bulgaria 0.3-5.1-5.63.92.75.3NMS-4 20.5-8.5-6.28.26.26.3Romania GDP developments - change in % against preceding year

29. wiiw 29 Industrial production: very slow recovery Industrial production, July 2008 = 100 Source: wiiw Database. * not seasonally adjusted.

30. wiiw 30 Foreign trade: very weak recovery EUR million, 2008-2009 Imports DeficitExports Source: wiiw Database, Eurostat.

31. wiiw 31 Foreign trade: exports flat Source: wiiw Database, Eurostat. EUR million, 2008-2009 Imports DeficitExports

32. wiiw 32 Exchange rates* Flexible exchange rate: drastic real depreciation after September 2008 2008-2009, EUR NCU, Jan. 2008 = 100 *Values over 100 indicate appreciation over January 2008. Source: wiiw Database, Eurostat.

33. wiiw 33 Exchange rates* De-facto fixed exchange rate: modest real depreciation after September 2008 2008-2009, EUR NCU, Jan. 2008 = 100 Source: wiiw Database, Eurostat. *Values over 100 indicate appreciation over January 2008.

34. wiiw 34 Exchange rates* Currency board or euro as legal tender: minor real depreciation after September 2008 2008-2009, EUR NCU, Jan. 2008 = 100 Source: wiiw Database, Eurostat. Values over 100 indicate appreciation over January 2008.

35. wiiw 35 Consumer prices, 2008-2009 August 2008 = 100 Source: wiiw Database, Eurostat.

36. wiiw 36 Integration Regional cooperation – trade and investment – Resenstein-Rodan big push policies – however it is a small and shrinking region European Union perspective – key for stability and also regional cooperation

37. wiiw 37 Conclusions There are no quick fixes Growth model has to be reconsidered due to sustainability and feasibility issues Savings will have to be increased and consumption will have to grow slowly if at all in the medium term Economic policies will have to be changed and structural reforms wil be necessary with the aim to change the real exchange rate