1. Regional Economic Trends Implications for Growth in FYR Macedonia
Indermit Gill
Chief Economist
Europe and Central Asia Region
The World Bank
Skopje, March 18, 2011

2. Main Points
Growth has returned. Growth rates will average about 4 percent in 2011, but Central and Eastern Europe (CEE) will grow only at 3 percent.
Poland avoided a recession in 2009 and will grow at 4 percent in 2011
Turkey grew 7 percent in 2010 and will grow at 5 percent in 2011
Jobs have not returned. Unemployment rates are high in CEE and Turkey.
Macedonia only country to see a small fall in unemployment rate in 2010, but its rate is the highest in Europe.
Poverty rates have not gone up, but middle class has not done well.
“Growth model” is being reassessed. The principal components are trade, finance, enterprise, innovation, labor and government.
Macedonia should assess what policy changes are needed in these areas. 2

3. UPDATE
THE REGION RECOVERS
11/9/2018

4. ECA’s growth in 2010 improved, but weakest among emerging economies
Real GDP Growth (%), 4

5. Most economies in the region contracted in in 2009
GDP Growth (%), preliminary estimates for 2009 5

6. Most countries in the region grew in 2010
GDP Growth (%), ECA Region estimates for 2010 6

7. All countries in the region forecast to grow in 2011
GDP Growth (%), ECA Region forecasts for 2011 7

8. Capital inflows up in ECA, because of both official transfers and private portfolio flows
Capital Flows (% GDP), (medians)
Europe & Central Asia
Latin America & East Asia
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9. FDI Inflows in FYR Macedonia
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10. Industrial Production (Index, 2006=100)
Industrial production has increased, but not back to pre-crisis levels in much of ECA
Industrial Production (Index, 2006=100)
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11. Non-performing loans are up, and higher than other emerging economies
Bank Non-Performing Loans (% Total Loans)
11/9/2018

12. Unemployment has stayed high in CEE, and continues to rise in CIS
Unemployment Rate (%)
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13. Recessions reduce employment, depressions destroy it
Relationship between GDP Growth (2009) and Change in Employment Growth (2008 to 2009)
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14. Higher social benefits generally mean higher fiscal deficits
Relationship Between Increased Social Benefits and Fiscal Deficits (2008- to 2009)
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15. Fiscal Balance (% GDP), 2008-2010
In 2010, the median ECA country ran fiscal deficits of about 5 percent of GDP
Fiscal Balance (% GDP), 15

16. In 2011, the median ECA country will run a smaller fiscal deficit
Projected Fiscal Balance (% GDP), 2011 16

17. External debt ratios varied in 2009
External Debt (% GDP), 2009 17

18. External debt ratios roughly the same now
External Debt (% GDP), 2011 18

19. THINKING ABOUT GROWTH
MIDDLE INCOME Trap?
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20. A middle income trap? GDP per capita growth rates, 1900 to 2000
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21. Countries diversify, then specialize
OECD Employment, , Economy-wide 20 sectors.
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22. Convergence benefits from being in the EU are enormous: Incomes
Real GDP Growth (%) and 1970 Per Capita GDP
All Countries: R = 0.02
EU-27 Countries: R = 22

23. Convergence benefits from being in the EU are enormous: consumption
Consumption Growth (%) and 1970 Per Capita Consumption
All Countries: R = 0.03
EU-27 Countries: R = 23

24. Half of Southeastern Europe’s exports already go to the EU
Exports as a share of total exports to the world (%), 2008 24

25. Balkan growth prospects depend increasingly on Western Europe
Business Cycle Synchronization
(12-month moving correlation of industrial production with EU15) 25

26. Western European prospects are not the strongest
Real GDP Growth (%),
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27. But keep this map in mind
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28. Location matters: Keep this map in mind
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29. Macedonia has a fortunate location
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30. A “GROWTH MODEL” FOR fyr MACEDONIA?
QUESTION
A “GROWTH MODEL” FOR fyr MACEDONIA?
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31. Growth model questions
Trade. How can Macedonia take fuller advantage of being close to the EU?
Finance. The financial sector has been kept stable, now how to make it contribute more to growth?
Enterprise. Business-friendly changes in the laws have taken place, but are labor-related reforms lagging?
Innovation. Are the secondary and tertiary education systems supporting enterprise and innovation?
Labor. Can Macedonia grow any faster with such a high unemployment rate?
Government. Fiscal balance has been maintained, but how should government spending be made more growth-oriented? 31