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

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

wiiw

3

GDP per capita, 2008EUR at PPPs

Source: wiiw Annual Database incorporating national statistics.

0

2000

4000

6000

8000

10000

12000

14000

16000

NMS-5 HR ME RO BG RS MK BA AL

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4

Real GDP growth in CEE and SEE, 2000 = 100

90

100

110

120

130

140

150

160

170

2000 2001 2002 2003 2004 2005 2006 2007 2008

NMS-4 Poland Bulgaria

Romania PCC-4* CC-2**

Note: * PCC-4:AL,BA,ME,RS. **CC-2: HR, MK.

Source: wiiw Annual Database incorporating national statistics.

wiiw

5

FDI stock, per capita, in NMS and SEEC, 2000-2008, EUR

0

500

1000

1500

2000

2500

3000

3500

4000

4500

5000

2000 2001 2002 2003 2004 2005 2006 2007 2008

New Member States-5 Bulgaria

Romania Southeast Europe

Source: wiiw Annual Database incorporating national statistics.

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6

FDI stock, per capita, in NMS and SEEC, 2000-2008, EUR

0

1000

2000

3000

4000

5000

6000

7000

8000

2000 2001 2002 2003 2004 2005 2006 2007 2008

BG RO AL BA HR MK ME RS NMS-5

Source: wiiw Annual Database incorporating national statistics.

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7

0

50

100

150

200

250

AL BA BG HR MK ME* RO RS* NMS-8

1990=100 1995=100 2000=100

Industrial production, 2008

Note: Until 1998 data refer to Serbia and Montenegro.

Source: wiiw Annual Database incorporating national statistics.

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8

Exports of goods and services (BOP)

in % of GDP

Source: wiiw Annual Database incorporating national statistics.

0

10

20

30

40

50

60

70

80

90

NMS-4 BG RO HR MK AL BH ME RS

2004 2005 2006 2007 2008

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9

Exports in NMS and SEE, EUR mn

0

50000

100000

150000

200000

250000

1990 1993 1996 1999 2002 2005 2008

NMS-4 Poland Bulgaria Romania SEE

Note: Data refer to sum over available data

Source: wiiw Annual Database incorporating national statistics.

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11

Technology-driven industries, as % of total manufacturing exports to the EU

0

10

20

30

AL BA BG HR MK ME RO RS NMS8

2005 2006 2007 2008

Source: Comext.

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12

Low-skill industries,as % of total manufacturing exports to the EU

0

10

20

30

40

50

60

70

80

90

100

AL BA BG HR MK ME RO RS NMS8

2005 2006 2007 2008

Source: Comext.

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14

Trade balances of goods and services and income balances 2000-2008, in % of

GDP

-30

-25-20

-15

-10

-50

5

10

1520

25

20

00

20

02

20

04

20

06

20

08

20

00

20

02

20

04

20

06

20

08

20

00

20

02

20

04

20

06

20

08

20

00

20

02

20

04

20

06

20

08

20

00

20

02

20

04

20

06

20

08

20

00

20

02

20

04

20

06

20

08

20

00

20

02

20

04

20

06

20

08

Trade balance in % of GDP Income in % of GDP

Transfers in % of GDP Current account in % of GDP

Source: wiiw Annual Database incorporating national statistics, Eurostat.

CZ HU PL SK SI HR RS

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15

Trade balances of goods and services and income balances 2000-2008, in % of

GDP

-30

-25

-20

-15

-10

-5

0

5

10

15

20

00

20

02

20

04

20

06

20

08

20

00

20

02

20

04

20

06

20

08

20

00

20

02

20

04

20

06

20

08

20

00

20

02

20

04

20

06

20

08

20

00

20

02

20

04

20

06

20

08

20

00

20

02

20

04

20

06

20

08

20

00

20

02

20

04

20

06

20

08

Trade balance in % of GDP Income in % of GDP

Transfers in % of GDP Current account in % of GDP

Source: Eurostat.

BG RO EE LT LV TR UA

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16

Trade balance (commodities) in % of GDP in SEE and CEE

-40-35-30-25-20-15-10-505

NM

S-5

Cro

atia

Mac

edon

ia

Alb

ania

Bos

nia-

Her

zego

vina

Mon

tene

gro

Ser

bia

Bul

gari

a

Rom

ania

2003 2004 2005 2006 2007 2008

Source: wiiw Annual Database incorporating national statistics.

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17

Current account in % of GDP in SEE and CEE

-30

-25

-20

-15

-10

-5

0

5

NM

S-5

Cro

atia

Mac

edon

ia

Alb

ania

Bos

nia-

Her

zego

vina

Mon

tene

gro

Ser

bia

Bul

gari

a

Rom

ania

2003 2004 2005 2006 2007 2008

Source: wiiw Annual Database incorporating national statistics.

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18

0

5

10

15

20

25

Croatia Macedonia Albania Bosnia &Herzegovina

Bulgaria Romania

2007 2008

Private transfers in SEEin % of GDP

Source: wiiw Annual Database incorporating national statistics.

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19

Components of the Balance of Paymentsin % of GDP, 2008

Source: National banks of respective countries.

Croatia Macedonia AlbaniaBosnia &

Herzegovina Montenegro Serbia Bulgaria Romania

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 goods 20.6 41.3 10.2 27.9 15.5 20.7 44.6 24.5 Imports of goods -43.5 -68.0 -37.4 -66.0 -60.1 -40.9 -69.8 -37.9 b) Services, net 14.7 0.0 0.8 5.4 12.1 -0.3 2.3 0.6 1. Transport, net 1.1 -0.9 -1.1 0.3 . . 0.3 0.0 2. Travel, net 14.1 1.0 1.3 3.3 . . 2.7 -0.1 3. Other, net -0.5 -0.1 0.6 1.8 . . -0.7 0.7 c) Income, net -3.3 -1.4 1.2 3.2 0.2 -2.1 -3.9 -3.8 1. Compensation of employees, net 1.2 1.4 1.9 4.4 . . 4.2 0.8 2. Investment income, net -4.5 -2.9 -0.7 -1.1 . . -8.1 -4.6 d) Current transfers, net 2.2 15.0 10.5 14.6 2.2 8.8 1.5 4.4 1. General government, net -0.1 0.7 0.4 1.3 . . 0.3 0.6 1. Other sectors, net 2.3 14.3 10.1 13.3 . . 1.2 3.7

Private transfers, EUR mn 1342 1286 1086 1851 . . 720 6576Private transfers, % GDP 2.8 19.8 12.1 14.6 . . 2.1 4.8Private transfers, per capita 303 628 342 482 . . 94 306

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20

Gross external debt in % of GDP

Source: wiiw Annual Database incorporating national statistics.

0

20

40

60

80

100

120

BG RO HR MK AL BH ME RS

2004 2005 2006 2007 2008

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21

Gross external debt in % of exports of

goods and services (BOP)

Source: wiiw Annual Database incorporating national statistics.

0

50

100

150

200

250

BG RO HR MK AL BH ME RS

2004 2005 2006 2007 2008

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22

General government budget balance, in % of GDP

-6

-4

-2

0

2

4

6

8

AL BA HR MK ME RS BG RO

2005 2006 2007 2008

Source: wiiw Annual Database incorporating national statistics.

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23

Labour market indicators 2008LFS, in % average

Employment rate Unemployment rate

Albania 53.8 13.1

Bosnia and Herzegovina 33.6 23.4

Croatia 44.4 8.4

Macedonia 37.3 33.8

Montenegro 42.3 17.2

Serbia 44.4 13.6

Bulgaria 50.8 5.6

Romania 51.4 5.8

Source: wiiw Annual Database incorporating national statistics.

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24

0

5

10

15

20

25

30

35

40

BG RO MK BA ME RS AL HR

2007 2008 2009

Unemployment rates, 2007-2009in %, annual average, LFS

Source: wiiw Database.

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25

The main problem

Weak tradeable sector External imbalances Low domestic savings

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26

GDP growth rates, 2005-2010year-on-year, growth in %

Source: wiiw Annual Database incorporating national statistics.

-8

-6

-4

-2

0

2

4

6

8

10

12

2005 2006 2007 2008 2009 2010

NMS-4 BG RO HR MK AL BA ME RS

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27

Industrial production growth, 2005-2010year-on-year, growth in %

Source: wiiw Annual Database incorporating national statistics.

-20

-15

-10

-5

0

5

10

15

2005 2006 2007 2008 2009 2010

NMS-4 BG RO HR MK TR AL BA ME RS

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28

2011201020092009

1-2Q

2008

1-2Q

20082007

2

2

1

5

1.0-3.5-4.17.65.46.9Serbia

-1-3.0-3.5.8.110.7Montenegro

-1-3.0..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

-1-6.0-3.57.06.06.2Bulgaria

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

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29

Industrial production: very slow recoveryIndustrial production, July 2008 = 100

Source: wiiw Database.

40

50

60

70

80

90

100

110

120

130

Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09

HR* MK

40

50

60

70

80

90

100

110

120

Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09

ME RS

* not seasonally adjusted.

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30

Foreign trade: very weak recovery

Croatia

0

200

400

600

800

1000

1200

1400

1600

1800

2000

Jul-08 Oct-08 Jan-09 Apr-09 Jul-09

Macedonia

0

50

100

150

200

250

300

350

400

450

500

Jul-08 Oct-08 Jan-09 Apr-09 Jul-09

EUR million, 2008-2009Imports DeficitExports

Source: wiiw Database, Eurostat.

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31

Foreign trade: exports flat

Albania

0

50

100

150

200

250

300

350

Jul-08 Oct-08 Jan-09 Apr-09 Jul-09

Bosnia and Herzegovina

0

100

200

300

400

500

600

700

800

Jul-08 Oct-08 Jan-09 Apr-09 Jul-09

Serbia

0

300

600

900

1200

1500

Jul-08 Oct-08 Jan-09 Apr-09 Jul-09

Source: wiiw Database, Eurostat.

EUR million, 2008-2009Imports DeficitExports

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32

Serbia

80

85

90

95

100

105

110

115

Jan-08

Apr-08

Jul-08

Oct-08

Jan-09

Apr-09

Jul-09

Oct-09

nominal exchange ratereal exchange rate, PPI-deflated

Exchange rates*Flexible exchange rate: drastic real depreciation after

September 20082008-2009, EUR NCU, Jan. 2008 = 100

*Values over 100 indicate appreciation over January 2008.

Source: wiiw Database, Eurostat.

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33

Exchange rates*De-facto fixed exchange rate:

modest real depreciation after September 2008 2008-2009, EUR NCU, Jan. 2008 = 100

Albania

75

80

85

90

95

100

105

110

115

Jan-08

Apr-08

Jul-08

Oct-08

Jan-09

Apr-09

Jul-09

Oct-09

nominal exchange ratereal exchange rate, PPI-deflated

Croatia

75

80

85

90

95

100

105

110

115

Jan-08

Apr-08

Jul-08

Oct-08

Jan-09

Apr-09

Jul-09

Oct-09

nominal exchange ratereal exchange rate, PPI-deflated

Macedonia

75

80

85

90

95

100

105

110

115

Jan-08

Apr-08

Jul-08

Oct-08

Jan-09

Apr-09

Jul-09

Oct-09

nominal exchange ratereal exchange rate, PPI-deflated

Source: wiiw Database, Eurostat.

*Values over 100 indicate appreciation over January 2008.

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34

Exchange rates*Currency board or euro as legal tender:

minor real depreciation after September 2008

2008-2009, EUR NCU, Jan. 2008 = 100

Bosnia and Herzegovina

75

80

85

90

95

100

105

110

115

Jan-08

Apr-08

Jul-08

Oct-08

Jan-09

Apr-09

Jul-09

Oct-09

nominal exchange ratereal exchange rate, CPI-deflated

Montenegro

75

80

85

90

95

100

105

110

115

Jan-08

Apr-08

Jul-08

Oct-08

Jan-09

Apr-09

Jul-09

Oct-09

real exchange rate, PPI-deflated

Source: wiiw Database, Eurostat.

Values over 100 indicate appreciation over January 2008.

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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

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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