Wiener Institut für Internationale Wirtschaftsvergleiche The Vienna Institute for International Economic Studies Vladimir Gligorov Economic Outlook and Challenges for the Region

 wiiw 2 Real Economy  GDP and industrial production growth still strong, but risks to decline significant  Risks to yet another interrupted industrialization  Labour market problems great  External balance at risk  Relative prices to adjust  Inflation a problem if currencies depreciate

 wiiw 3 Key Risks  Decline of availability of foreign credit and investment  Export decline

 wiiw 4 Outlook for the SEE countries GDP, real change in % against previous year Source: wiiw (Oct 2008); forecasts: wiiw Forecast Croatia Macedonia Turkey Albania Bosnia & Herzegovina Montenegro Serbia

 wiiw 5 GDP growth rates, year-on-year, growth in % Source: wiiw Annual Database incorporating national statistics.

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7 Industry growth rates, year-on-year, growth in % Source: wiiw Annual Database incorporating national statistics.

 wiiw 8 Industry & GDP growth differential, year-on-year, growth difference in percentage points Source: wiiw Annual Database incorporating national statistics.

 wiiw 9 Employment, LFS - employed persons, th, avg., annual change in % Source: wiiw Annual Database incorporating national statistics. Remark: AL, BA registration data.

 wiiw 10 Unemployment, LFS - unemployed persons, th, avg., annual change in % Source: wiiw Annual Database incorporating national statistics. Remark: AL, BA registration data.

 wiiw 11 Drivers of GDP growth, contributions of main components to GDP growth, in % Note: *Net exports including change in stocks and statistical discrepancies. Source: wiiw Annual Database incorporating national statistics, forecasts: wiiw. Final consumption expenditureGross capital formationNet exports*GDP, right scale

 wiiw 12 Source: wiiw Monthly Database. Real appreciation*, EUR per NCU, PPI-deflated, in % against January 2004 * Increasing line indicates appreciation.

 wiiw 13 Source: wiiw Monthly Database. Serbia: Exchange rates, consumer prices and wages , year-on-year growth in % * Increasing line indicates appreciation.

 wiiw 14 Serbia: Exchange rates, consumer prices and wages, year-on-year growth in % Croatia: Exchange rates, consumer prices and wages, year-on-year growth in % * Positive values indicate real appreciation. Source: wiiw Database incorporating national statistics.

 wiiw 15 Slovenia: Exchange rates, consumer prices and wages, year-on-year growth in % Macedonia: Exchange rates, consumer prices and wages, year-on-year growth in % * Positive values indicate real appreciation. Source: wiiw Database incorporating national statistics.

 wiiw 16 Bulgaria: Exchange rates, consumer prices and wages, year-on-year growth in % Romania: Exchange rates, consumer prices and wages, year-on-year growth in % * Positive values indicate real appreciation. Source: wiiw Database incorporating national statistics.

 wiiw 17 Exports and FDI  Exports growing after year 2000  FDI growing after 2000  Similar to early experience of the Central European countries

 wiiw 18 Figure 4 Trade deficit and current account, in % of GDP Source: wiiw Annual Database incorporating national statistics.

 wiiw 19 Exports in NMS and SEE, =100 NMS-5: CZ, HU, PL, SK, SI

 wiiw 20 Exports in NMS and SEE, =100 NMS-5: CZ, HU, PL, SK, SI

 wiiw 21 FDI stock, per capita, in NMS and SEEC, , EUR NMS-5: CZ, HU, PL, SK, SI SEEC-6: HR, MK, RS, ME AL, BA

 wiiw 22 FDI stock, per capita, in NMS and SEEC, , EUR NMS-5: CZ, HU, PL, SK, SI

 wiiw 23 Trade specialization  Mostly low skilled and labour intensive goods are exported to the EU  Not necessarily reflecting the human capital endowment in the Balkan economies

 wiiw 24 Technology-driven industries, as % of total manufacturing exports to the EU NMS-5: CZ, HU, PL, SK, SI

 wiiw 25 Labour-intensive industries, as % of total manufacturing exports to the EU NMS-5: CZ, HU, PL, SK, SI

 wiiw 26 Low-skill industries, as % of total manufacturing exports to the EU NMS-5: CZ, HU, PL, SK, SI

 wiiw 27 Financial Challanges  High demand of foreign capital  Banking sector problems

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 wiiw 30 Summary statistics of the variables, 2003

 wiiw 31 EPL index, employment, unemployment in the SEE and peer countries (1) - employment rate, (2) - unemployment rate, in per cent respectively. Sources: see above.

 wiiw 32 Correlations among the variables employed

 wiiw 33 Regression results: male employment and unemployment Note: ***, **, * denote significance at 1%, 5%, 10% respectively. Robust standard errors. Male working-age population Dependent variable: employment rate coeff. (s.e.) coeff. (s.e.) EPL– regular (1.2803) (1.2800) EPL- temporary (1.0239) (1.1719) EPL– collective (1.0780) (1.0182) rule of law (2.2130) EU ** (2.4698) ** (2.6136) NMS *** (3.0695) *** (3.7339) SEE *** (3.9131) *** (5.3708) Constant *** (2.9346) *** (4.9864) Adj. R² Dependent variable: unemployment rate coeff. (s.e.) coeff. (s.e.) coeff. (s.e.) EPL– regular (0.8619) (0.8583) (0.7242) EPL- temporary (0.8291) (0.9678) * (0.8508) EPL– collective (1.0022) (1.0057) * (0.8240) rule of law (1.5780) (1.1815) EU (1.4939) (1.6677) NMS * (2.5878) (3.0890) SEE *** (4.3080) *** (4.7399) ** (4.9150) Constant (2.6427) (4.1674) * (3.2859) Adj. R²

 wiiw 34 Regression results: female employment and unemployment

 wiiw 35 Difference in average annual labour productivity growth and real wage growth

 wiiw 36 Difference in average annual labour productivity growth and real wage growth, ctd. Albania, Croatia, Notes: Albania: Hotels and Restaurants (H) not included in Other services.

 wiiw 37 Macedonia, Montenegro, Serbia, ctd.

 wiiw 38 Cumulative responses to one unit shocks

 wiiw 39 Risk factors and sustainability issues, by country

 wiiw 40 Predicted effects of a change in EPL on male unemployment

 wiiw 41 Predicted effects of a change in EPL on female employment

 wiiw 42 SEE EU accession forecast SAA Negotiations EU Euro Croatia Macedonia Turkey after 2020 Albania by 2015 by 2017 Bosnia and Herzegovina by 2015 by 2017 Kosovo after 2015 since 2002 Montenegro by 2015 since 2002 Serbia after 2015 after 2017

 wiiw 43 Medium-Term Economic Outlook for the SEE countries - conclusion  Growth dip 2008 & 2009, growth increase 2010  Growth driver: domestic demand (remittances & credit boom)  Reindustrialization & employment/export increase  Stable competitive performance (except TR & RS)  Weak net export position  Certain impact of global growth slowdown  Serbia’s unbalanced growth path regional risk  EU accession prospects improving (except TR)