January 2008 World Bank EU8+2 World Bank EU8+2 Regular Economic Report Regular Economic Report Special Topic on Satisfaction with Life and Public Service Delivery January 2008

The World Banks Regular Economic Reports (May, September, January) examine recent economic developments and prospects in the NMS. Each edition includes a Special Topic of current policy relevance in the region. This one focuses on the satisfaction with life and public services. The World Banks Regular Economic Reports (May, September, January) examine recent economic developments and prospects in the NMS. Each edition includes a Special Topic of current policy relevance in the region. This one focuses on the satisfaction with life and public services.

Message 1: The economic outlook for the EU8+2 in 2008 and 2009 is generally positive, however, as in the advanced economies, the baseline scenario is now subject to greater downside risk. The economic outlook for the EU8+2 in 2008 and 2009 is generally positive, however, as in the advanced economies, the baseline scenario is now subject to greater downside risk.

GDP growth rates peaked in many countries in the first half of This deceleration is likely to continue though 2008 but growth could still average as much as 5%. The slowdown is most pronounced in the Baltics. Growth should gradually resume in Hungary. Romania and Bulgaria may stay at or near current rates of growth. The rates of growth were unsustainable in some countries.

Message 2: While globalization offers the prospect of higher sustained growth, it also carries risks related to turbulence in external markets.

Potential for more severe global contraction affecting export markets in EU. Risk of cutoff of financing for current account deficits which are large in the Baltics and are continuing to grow in Romania and Bulgaria. Significant portion of debt is denominated in, or linked to, foreign currency.

Message 3: The disturbances originating in the sub-prime mortgage market in the US have widened to affect other countries and other markets, and prospects for US growth have become less clear, but several factors serve to dampen the effect on the EU8+2.

EU8+2 economies are linked more directly to the EU than the US. Banks in the region are not as exposed to the sub prime market. Domestic private demand (not net external demand) has been the main engine of growth. While credit has increased rapidly, private borrowers were under-leveraged a the outset.

Message 4: Inflation is on the rise throughout the region

Food and oil prices are a main factor. Changes may not be temporary Credit expansion slowing but strong. Currency appreciation effects have reversed in some countries. Wage growth easing but still strong Unit labor costs continue to rise. Convergence dynamics create strong price pressures for non-traded goods.

Message 5: The region faces some important macroeconomic challenges. The region faces some important macroeconomic challenges.

It is difficult for fixed exchange rate countries to use monetary policy to fight inflation and contain CADs. Monetary policy is less effective when a large portion of debt is in foreign currency. Authorities must rely more on fiscal policy to control demand but have been reluctant to take stronger measures despite buoyant revenues which may soften next year.

Special topic Satisfaction with Life and Public Service Delivery in EU8+2 Countries EBRD-World Bank Life in Transition Survey

1.Satisfaction with life and surroundings 2.Satisfaction with public service delivery 3.Other findings Priorities for public investments Democracy Economic system Corruption Income redistribution

Overall satisfaction with life is high..

..even if that with the economy is not

Mixed responses about impact of transition on their lives …

.. relative to parents..

..with optimism about the future for children

2. Satisfaction with Public Service Delivery 2. Satisfaction with Public Service Delivery Public education Request for official documents Public health system Road police Social security benefits Courts Other police Unemployment benefits

Generally high satisfaction levels…

... though some variation by country

3. Other Key Findings 3. Other Key Findings Priorities for public investment Democracy Economic system Corruption Income redistribution

Support for healthcare is a priority

Strong public support for democracy

Attitudes towards type of economic system

Perceptions regarding corruption

Strong Support for Redistribution