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Economic Outlook for EU-10, South-eastern Europe and the CIS

This presentation discusses the recession in Eastern Europe and CIS in 2019, the potential for a slowdown in 2020, policies to mitigate weakening growth, GDP prospects, inflation, and risks to the outlook.

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Economic Outlook for EU-10, South-eastern Europe and the CIS

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  1. Economic Outlook for EU-10, South-eastern Europe and the CIS Presented by Malinka Koparanova DESA/United Nations Project LINK Meeting, St. Petersburg, 4-6 June 2009

  2. OUTLINE • How deep is the recession in Eastern Europe and the CIS in 2009? • Will the slowdown continue into 2010? • Policies to mitigate weakening growth in region: how fast and how effective? • GDP prospects • Inflation • Risks to the outlook Project LINK Meeting, St. Petersburg, 4-6 June, 2009

  3. Growth of GDP in the world economy, Eastern Europe and the CIS: 2003 – 2010, % Project LINK Meeting, St. Petersburg, 4-6 June 2009

  4. Eastern Europe and the CIS in 2009: deeper-than-expected deterioration Slowdown of growth by end 2008 across all regions: Lower import demand in major trading partners (the EU) Higher costs of external financing; slowdown in bank lending Domestic credit dried up Housing and credit bubble (the Baltic States, Kazakhstan) Lower prices for oil and gas and other commodities that supported robust growth for several years in the resource-rich economies in the CIS Project LINK Meeting, St. Petersburg, 4-6 June 2009

  5. Oil Prices 2002-2009 Project LINK Meeting, St. Petersburg, 4-6 June, 2009

  6. Prices of non-oil commoditiesJan 2007 – Mar 2009 Project LINK Meeting, St. Petersburg, 4-6 June, 2009

  7. RTS index, 1 January, 2008 - 20 October, 2008 Project LINK Meeting, St. Petersburg, 4-6 June, 2009

  8. RTS index and Oil prices, 1 January, 2008 - 20 October, 2008 Project LINK Meeting, St. Petersburg, 4-6 June, 2009

  9. Eastern Europe and the CIS in 2009: growing uncertainties but for how long? Transmission mechanism varies across the CIS region: • Contagion effects spread over to the financial markets in the largest economies in the CIS accelerated: Russia, Ukraine and Kazakhstan • And through them to the rest CIS, such as Kyrgyzstan • In Russia, Ukraine and Kazakhstan external debt of the banking system has increased Project LINK Meeting, St. Petersburg, 4-6 June, 2009

  10. Growth of GDP in the CIS, 2008-2010 Project LINK Meeting, St. Petersburg, 4-6 June, 2009

  11. Growth of GDP in the EU-10, 2008-2010 Project LINK Meeting, St. Petersburg, 4-6 June, 2009

  12. Growth of GDP in South-eastern Europe, 2008-2010 Project LINK Meeting, St. Petersburg, 4-6 June, 2009

  13. Inflationary pressures are subsiding albeit CPI at high levels Food and energy prices are declining since mid-2008 Demand factors: wage growth is slowing, unemployment rates are growing Much slower growth in domestic credit Upward pressure: increases in excise taxes, in regulated prices, depreciation of currencies Project LINK Meeting, St. Petersburg, 4-6 June 2009

  14. CPI Inflation rates for CIS countries, 2008-2010 Project LINK Meeting, St. Petersburg, 4-6 June, 2009

  15. CPI Inflation rates for the EU-10 countries, 2008-2010 Project LINK Meeting, St. Petersburg, 4-6 June, 2009

  16. CPI Inflation rates for South-eastern Europe, 2008-2010 Project LINK Meeting, St. Petersburg, 4-6 June, 2009

  17. Liquidity constraints: central to economic policies Monetary easing Reducing reserve requirements (Russia and Kazakhstan), Lowering interest rates (Russia, Kazakhstan and Ukraine) Massive interventions to support the currency – in the Russian Federation, Kazakhstan, Ukraine. Looking ahead, growth-oriented policies will prevail at least till the mid-2010 when a shift to a tighten monetary policy stance is possible in most CIS to curtail inflationary pressures. Project LINK Meeting, St. Petersburg, 4-6 June 2009

  18. Growing fiscal deficits across the regionsProblems of current account balances persist On the fiscal front, policies will remain expansionary Rising expenditures for fiscal stimuli and increasing unemployment; In 2009, the budget surplus in the Russian Federation turned to deficit which is expected to widen The current-account balances in the resource-rich CIS turned from surpluses to deficits; a reversal in the terms of trade in commodity exporters; in the rest deficits are narrowing as imports declines at higher speed Growing external financial needs and weak FDI and remittances has caused a new wave of IMF lending to TE. Project LINK Meeting, St. Petersburg, 4-6 June 2009

  19. Downside risks to the 2009 outlook: increased uncertainties both outside and inside the regions External risks: Severe and more prolonged global recession could weaken commodity prices and reduce external demand causing stagnation in many CIS Tightening external financial conditions Further deterioration of Russian growth will have adverse impact on growth in the rest CIS: reducing remittances, trade and FDI within the CIS. Project LINK Meeting, St. Petersburg, 4-6 June 2009

  20. Domestic risks: • Growing unemployment • Growing inflation and devaluation • Increased political tension • Failure to restructure the banking sector • Loss of credibility Project LINK Meeting, St. Petersburg, 4-6 June, 2009

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