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wiiw Forecast for Central, East and Southeast Europe, 2010-2012
March 4, 2010--Most countries in Central, East and Southeast Europe have emerged from the trough of the
crisis already at the end of 2009. Several leading indicators point to a modest upswing. All
countries in the region will grow again only by 2011. Growth may accelerate slightly in 2012,
but will in general be slower than in the pre-crisis period.
Given the weak rebound of
economic activities, unemployment will continue to rise. The most vulnerable group of
workers affected by the crisis are those with low skills. Economic policies should focus on
countercyclical measures, correcting real exchange rate misalignments, as well as changing
the regulatory framework and a range of supply-side policies. These are the main results of the new medium-term forecast and policy assessment for the region published by the Vienna Institute for International Economic Studies (wiiw).
Recession deeper than expected
After a long period of convergence, Central, East and Southeast Europe experienced a deep recession in 2009. The relatively moderate GDP decline (-3.6%) on average for the new EU member
states (NMS) reflects Poland’s weight in the group, the only EU country to have recorded positive GDP growth last year (Albania, Kazakhstan and China registered positive growth rates as well). In most other countries the catching-up process was interrupted, in particular the Baltic States were thrown several years back – more than Russia and Ukraine. The most conspicuous
response to the crisis was a radical depletion of inventories and, closely related to this, a dramatic
improvement in net exports since the contraction of imports was much larger than that of exports.
This, together with less profit realized by foreign companies operating in the region, resulted in a
sizeable reduction of current account deficits.
Modest upswing in the making
Most countries in the region have emerged from the trough of the crisis already at the end of 2009.
Several leading indicators point to a modest upswing. Poland’s growth will once again boost the
NMS average in 2010, while the rate of expansion in the Czech Republic, Slovakia and Slovenia will
be meagre. Hungary, Romania and Bulgaria are still expected to stagnate in 2010, the Baltic States
will record further negative growth rates – just as Croatia, Bosnia and Herzegovina and Montenegro.
Russia, Ukraine and Kazakhstan will rebound more strongly. We expect all countries in the region to
be growing again only by 2011. That growth may accelerate slightly in 2012, but will in general be
slower than in the pre-crisis period. The main prerequisite of an upturn is a marked recovery in
global trade, including a rise in demand for imports from the region. Increases in private
consumption are not likely to be very pronounced as long as employment fails to grow. Investment
will not act as a strong engine of growth either. Given the generally weak rebound of economic activities, unemployment will continue to rise, probably peaking in 2010, before falling slowly to
pre-crisis levels. The most vulnerable group of workers affected by the crisis are again those with
low skills.
China’s economy expanded at a rate of 8.7% in 2009, more than expected earlier. This fast growth despite a slump in exports was due to massive government stimulus measures driving investment and supporting private consumption. With the expansionary fiscal policy still in place and foreign demand picking up, the Chinese economy may grow even faster in the coming years.
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Source: Vienna Institute for International Economic Studies (wiiw).
S&P GSCI recovers 5.56 per cent in February
March 4, 2010--The S&P GSCI, a commodities index, increased 5.56 per cent in February after falling 7.89 per cent in January.
The index was led higher during the month by energy: the S&P GSCI Energy Index gained 6.92 per cent in February.
The strategy revolves around promoting low-carbon industries, investing in efforts to develop new products, unleashing a digital economy and modernising education and training. Five quantitative targets are proposed, including increasing the employment rate to at least 75% from the current 69% and boosting spending on research and development to 3% of gross domestic product - it is currently only 2% of GDP, significantly less than in the US and Japan. Likewise, the plan reaffirms the EU's ‘20/20/20' climate change goals - already among the most ambitious in the world - and proposes a poverty reduction target of 25%, estimating that this would lift 20 million people out of poverty.
Turning to education, the commission recommends efforts to cut the school dropout rate to below 10% from the current 15% and to expand the share of people in their early 30s with a university degree (to 40% from 31%).
The paper proposes that governments agree on national targets that would take account of conditions in each country while helping the EU as a whole achieves its goals. The commission will monitor progress and issue warnings in cases of "inadequate response."
The EU already tracks public finances to prevent imbalances that could undermine the eurozone. The new plan would go beyond that to include other issues that could undermine EU-wide competitiveness.
The strategy identifies seven flagship initiatives the EU should take to boost growth and employment. These include programmes to improve conditions and access to finance for R&D, speed up the roll-out of high-speed internet and increase the use of renewable energy.
Government leaders are expected to debate the overall approach at the meeting later this month. The details, including national targets, would the subject of a summit later this year, possibly in June. Europe 2020
Eurozone will survive despite Greek financial crisis
Of those who responded, 79% feel the eurozone will remain intact with only 21% of the view that the situation in Greece will trigger the collapse of the union of 16 countries.
“The threat of a potential domino effect within the eurozone should be sufficient for the group to come up with a workable solution, for the time being at least.”
“The euro has always been a political project rather than a financially pragmatic one. For this reason its members will not allow it to collapse, even if this comes at a great cost.”
“It will not collapse immediately because there is too much political capital invested in it. In the long term, Germany will probably not be interested in taking the steps to save it.”
Leading commentators across Europe have warned the future of the zone is at risk. They include Carl Heinz Daube, head of the German debt management agency, who warned that if any member country defaulted on its debt, the eurozone would break up. Ireland follows UK path for pension reforms < a href="http://www.pensionsgreenpaper.ie/downloads/NationalPensionsFramework.pdf" TARGET="_top">view the National Pensions Framework paper
Coming on the heels of the longest and deepest recession in EU history, the much-anticipated Europe 2020 plan acknowledges the huge challenges ahead. The economic crisis has exposed deep flaws in an economy already under strain from globalisation, pressures on resources and an ageing population. The commission's position is that these can be overcome if Europe is willing to embrace transformation to a greener, more innovative market that fosters social wellbeing.
Source: European Commission
March 3, 2010--Nearly eight out of ten financial services practitioners believe the eurozone will survive despite the strain of the Greek financial crisis, a survey by the Chartered Institute for Securities & Investment (CISI) shows.
Comments from those taking part in the CISI survey included:
Source: Chartered Institute for Securities & Investment (CISI)
March 3, 2010--The Irish government has unveiled plans for a pension framework which will require the auto-enrolment of all employees aged 22 or over from 2014, along with matching contributions from the employer, and State contributions equal to 33% tax relief. The State retirement age will also be increased to 68 by 2028.
Among the key proposals set out, the government said defined benefit pension schemes can expect stronger regulation and employees will be given access to defined contribution (DC) Approved Retirement Funds.
Source: IP&E
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