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Bank of Greece – University of Oxford (SEESOX) Conference Challenges and Prospects of South East European Economies in the wake of the financial crisis Bank of Greece Friday, 16 October 2009. Resilience of SEEs to the crisis Paul Mylonas
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Bank of Greece – University of Oxford (SEESOX) Conference Challenges and Prospects of South East European Economies in the wake of the financial crisis Bank of Greece Friday, 16 October 2009 Resilience of SEEs to the crisis Paul Mylonas Chief Economist, Chief of Strategy, National Bank of Greece Group National Bank of Greece Group – Strategy & Economic Research
What people saw and what they expected What happened and current prospects Why a better-than-expected outcome NBG - Strategy & Economic Research Resilience of SEEs to the crisis 1
What people saw and what they expected NBG - Strategy & Economic Research Resilience of SEEs to the crisis 2
Booming activity, albeit from a low base … but above potential? NBG - Strategy & Economic Research Resilience of SEEs to the crisis 3
Evidence of excess demand reinforced by the build-up of a large external imbalance NBG - Strategy & Economic Research Resilience of SEEs to the crisis 4
Additional indicators of imbalances – real exchange rate appreciation and large credit impulse NBG - Strategy & Economic Research Resilience of SEEs to the crisis 5
Banking sector imbalances: large share of F/X denominated loans and dependence on foreign funding NBG - Strategy & Economic Research Resilience of SEEs to the crisis 6
Very large real wage increases (again from a low base), but were they hampering competitiveness? Also a house price bubble had emerged NBG - Strategy & Economic Research Resilience of SEEs to the crisis 7
With the global economy in turmoil, markets and analysts envisaged a grim end to the boom years NBG - Strategy & Economic Research Resilience of SEEs to the crisis 8
What happened and current prospects NBG - Strategy & Economic Research Resilience of SEEs to the crisis 9
Much larger-than-initially-expected drop in output, similar to more advanced economies, and with a higher “β”… NBG - Strategy & Economic Research Resilience of SEEs to the crisis 10
… due to openness and manufacturing bias NBG - Strategy & Economic Research Resilience of SEEs to the crisis 11
Further evidence of the important role of the inventory correction in the nascent recovery in exports NBG - Strategy & Economic Research Resilience of SEEs to the crisis 12
Contraction in activity reflects a sharp slowdown in exports and credit expansion NBG - Strategy & Economic Research Resilience of SEEs to the crisis 13
External imbalances correcting rapidly, despite drop in exports, reflecting … NBG - Strategy & Economic Research Resilience of SEEs to the crisis 14
… a cut-off of oxygen to the economy from large capital inflows of the past -- yet better than expected NBG - Strategy & Economic Research Resilience of SEEs to the crisis 15
As a result, FX reserves have not suffered greatly, and appear adequate in relation to the external financing gaps NBG - Strategy & Economic Research Resilience of SEEs to the crisis 16
Overall, leading and coincident indicators suggest that the worst is over, and activity will recover by Q4:2009 NBG - Strategy & Economic Research Resilience of SEEs to the crisis 17
Markets clearly have changed their mind regarding the outlook for SEE, as well NBG - Strategy & Economic Research Resilience of SEEs to the crisis 18
Why a better-than-expected outcome NBG - Strategy & Economic Research Resilience of SEEs to the crisis 19
EU membership (or on path towards) and/or IFI umbrella, combined with solid Governments (in most cases) provided much needed support… NBG - Strategy & Economic Research Resilience of SEEs to the crisis 20
… allowing monetary policy to be countercyclical (in contrast to other EM crises) NBG - Strategy & Economic Research Resilience of SEEs to the crisis 21
FP is also countercyclical, with automatic stabilizers allowed free reign, permitted by good initial debt conditions… NBG - Strategy & Economic Research Resilience of SEEs to the crisis 22
A traditional Achilles’ heel of EM crises -- the health of the banking system -- was in good shape NBG - Strategy & Economic Research Resilience of SEEs to the crisis 23
Several years of adjustment effort has made these economies very competitive NBG - Strategy & Economic Research Resilience of SEEs to the crisis 24
Thank you NBG - Strategy & Economic Research Resilience of SEEs to the crisis 25