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3rd Craft, Trade and SME Summit Luxembourg, 23-24th April 2004

3rd Craft, Trade and SME Summit Luxembourg, 23-24th April 2004. Accession Countries on the Eve of EU Enlargement Peter Havlik (wiiw) Current economic situation and outlook for the region Income and productivity catching-up in the ACs Challenges of EU accession for the new member states.

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3rd Craft, Trade and SME Summit Luxembourg, 23-24th April 2004

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  1. 3rd Craft, Trade and SME SummitLuxembourg, 23-24th April 2004 Accession Countries on the Eve of EU Enlargement Peter Havlik (wiiw) Current economic situation and outlook for the region Income and productivity catching-up in the ACs Challenges of EU accession for the new member states

  2. 2002 2003 2004 2005 Forecast Czech Republic 2.0 2.9 3.0 3.5 Hungary 3.5 2.9 3.5 3.9 Poland 1.4 3.7 4 4 Slovak Republic 4.4 4.0 4.5 5 Slovenia 2.9 2.2 3.4 3.5 CEEC-5 2.2 3.4 3.7 3.9 Estonia 6.0 4.8 5.4 5.9 Latvia 6.1 7.4 6.2 6.2 Lithuania 6.8 8.9 6.9 6.6 CEEC-8 2.5 3.7 4.0 4.2 Bulgaria 4.8 4.5 4.5 4 Romania 4.9 4.9 4.5 4.5 CEEC-10 3.0 3.9 4.2 4.1 Croatia 5.2 4.3 3.2 3.5 Macedonia 0.3 2.8 4 4 Serbia and Montenegro 4.0 1.0 2 3 Russia 4.7 7.3 5.0 4.6 Ukraine 5.2 9.3 7 6.5 EU(15) 1.1 0.8 2.0 2.4 Austria 1.4 0.8 1.6 2.2 Gross Domestic Product (GDP) annual changes in % against previous year

  3. Real per capita GDP in ACsEU(25) average = 100 Note: Projection assuming a 2 percentage points growth differential with respect to the EU(15) after 2003.

  4. Productivity in ACs and EU(15)Index 1995=100 Productivity growth in EU(25) will accelerate: +23

  5. Productivity in ACs and EU(15) GDP per employed persons, EU(15) = 100, year 2003 Productivity level in EU(25) will drop by 7% after accession compared to EU(15)

  6. Facit: Genuine growth forecasts now hardly possible Higher GDP growth expected in the medium and long run No immediate direct growth effects (year 2004) expected The recent catching-up processes will continue European economy slowly recovers from stagnation highly integrated ACs profit from the EU recovery as well Accelerated GDP growth after 2005 possible Consequences of EU accession for ACs:GDP growth

  7. 2002 2003 2004 2005 Forecast Czech Republic 1.8 0.1 3.5 2 Hungary 5.3 4.7 6.9 5 Poland 1.9 0.8 2 3 Slovak Republic 3.3 8.5 8 5 Slovenia 7.5 5.6 4 3.5 Estonia 3.6 1.4 2.8 2.9 Latvia 1.9 2.9 4 3.5 Lithuania 0.3 -1.2 1 2.2 Bulgaria 5.8 2.4 5 3 Romania 22.5 15.3 11 8 Croatia 2.2 1.5 2 1.5 Macedonia 1.4 2.4 3 2 Serbia and Montenegro 16.5 9.4 8 8 Russia 16.0 13.6 10 8 Ukraine 0.8 5.2 7 5 Inflation (consumer prices)annual changes in % against previous year

  8. Facit: Higher interest rates as a reaction to inflationary pressures may pose a break on the future GDP growth Price levels temporarily increase (except Slovenia) As a consequence of the harmonisation of Taxes and Tariffs with the EU The requirement to meet Maastricht criteria will exert a downward pressure on inflation Adjustments to EU price levels in the Single Market expected in the medium and long run Consequences of EU accession for ACs:Inflation

  9. Government deficit (= „-“)in % of GDP Maastricht (3% des BIP)

  10. Government debtin % of GDP Maastricht (60% des BIP)

  11. Facit: Expected anti-inflationary measures and government deficit reduction programs may well result in lower GDP growth in the short- and medium run Revenues from trade tariffs drop Costs due to the implementation of ‚acquis‘-regulations increase Contributions to EU budget from 1 May Co-financing of EU projects and agricultural subsidies Revenues from project-related transfers uncertain (mainly 2004) The already high government deficits may well grow Consolidation requirements may result in more restrictive fiscal politicies Consequences of EU accession for ACs:State budgets

  12. FDI stocks in ACs, Ukraine and Russia, 2003

  13. Facit: Deterioration of trade and current account balances possible Exports and Imports grow as last trade barriers disappear (especially in agriculture and services trade) Growing trade also among ACs themselves Extra-EU Imports increase due to market growth effects Market services in the ‚old‘ EU remain competitive; outsourcing to ACs only in selected areas Consequences of EU accession for ACs:Foreign trade

  14. Nominal exchange rates, Jan. 2000=100(national currency vis-à-vis EUR)

  15. Facit: Euro accession 2007 at the earliest (EE, LT, LV, SI) Resp. only after 2008 (CZ, HU, PO, SK) After initial enthusiasm most ACs are nowadays rather cautious Only Estonia, Latvia, Lithuania and Slovenia intend to join ERM II immediately after EU accession (2 years ER stability, +/-15% fluctuations permitted) Poland, Hungary, Slovakia and the Czech Republic will and can join EMU only some time afterwards Consequences of EU accession for ACs:Participation in ERM II and EMU accession

  16. 2002 2003 2004 2005 Prognose Czech Republic 7.3 7.8 8.2 8.2 Hungary 5.8 5.9 6 6 Poland 19.9 19.5 20 19 Slovak Republic 18.5 17.4 16 15 Slovenia 6.4 6.7 6.3 6 CEEC-5 15.3 15.0 15.2 14.6 Estonia 10.3 10.0 10 10 Latvia 12.0 10.8 10 10 Lithuania 13.8 12.7 12 11 CEEC-8 15.0 14.6 14.7 14.2 Bulgaria 17.8 14.5 14 13 Romania 8.4 7.0 8 7 CEEC-10 13.8 13.0 13.4 12.6 Croatia 14.8 14 14 13.5 Macedonia 31.9 36.7 36 35 Serbia and Montenegro 13.8 14 15 15 Russia 8.0 8.5 8 9 Ukraine 10.1 9.5 9 8.5 Unemplyoment rates (LFS)annual averages in %

  17. 0.00 to 5.00 5.00 to 10.00 10.00 to 15.00 15.00 to 30.00 No data Unemployment rates by region (%), 2002

  18. Facit: Labour market will remain the major challenge for the EU in future as well East-west migration waves are not expected Lasting high unemployment in most ACs (‚jobless growth‘) Nevertheless, additional migration flows hardly expected due to existing restrictions and low labour mobility in the ACs In the medium- and long run, the ACs will face labour market shortages due to low birth rates and aging populations Consequences of EU accession for ACs:Labour market and migration

  19. Summary conclusions • GDP growth: no immediate direct effects of EU accession, more growth in the medium and long run (assuming ‚good‘ policies), yet exact forecasts are hardly possible • Inflation: temporary price increases, higher interest rates likely • State budget: higher deficits, restrictive fiscal and monetary policies could pose a break on future GDP growth • Foreign trade: exports and imports will grow; trade and current account balances may deteriorate • FDI flows: no boom; privatisation completed, few additional big projects, only greenfield and SME investments will expand • EMU (Euro) accession: 2007 at the earliest (EE, LT, LV, SI) resp. only after 2008 (CZ, HU, PO, SK)

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