1. 1 Promoting work and well being: an OECD Development Centre Economic Outlook Javier Santiso Director & Chief Development Economist, OECD Development Centre 23 June 2008 Bucharest

2. 2 DEV A platform for OECD & developing country dialogue Non-OECD members OECD members 2008 - 23 members Chile South Africa India Thailand Egypt Israel Brazil Romania Vietnam

3. 3 BSEC-CA An OECD Development Centre Economic Outlook The OECD BSEC-CA Economic Outlook A cross-country comparative analysis of macroeconomic and policy developments of the BSEC-CA region, involving 12 BSEC and 5 CA countries The first such report dedicated to a cross-cutting policy issue: Work and Well-Being Further OECD work on Romania: Reform Effort Support – Sigma – 2001-2008 Education Policies for Students at Risk and those with Disabilities in South Eastern Europe- EDU - 2006 Investment Policy Review for Romania – DAF – 2005 Enterprise Policy Performance Assessment Romania – DAF - 2005 Reviews of National Policies for Education Romania - EDU - 2003 Romania -- Economic Assessment – ECO - 2002

4. 4 Growth Strong & sustained overall growth GROWTH: Over 2001-06, average growth rate for the 11 CIS countries was around 8 per cent, comparing favourably with Asian economies. Substantial improvements in productivity have been the driving force behind this strong growth. TRADE: The European Union is the main trade partner for the region, accounting for over half of all trade for the six non-CIS countries. Russia is the main intra-regional trading partner,

5. 5 L-LM Low & Lower-middle income countries Key macroeconomic variables, 1995-2007 GDP (current prices, USD billion) GDP per capita, PPP (USD) Population (million) 19952007e19952007e2007 Albania2.710.82 6366 1973.2 Armenia1.37.81 4185 7693.5 Azerbaijan2.431.11 7648 5218.6 Georgia1.99.61 2874 1764.4 Moldova1.441 6503 0903.4 Ukraine37131.23 9998 62446.4 Note: e data for 2007 are estimates. Source: IMF, 2008 Source: OECD Development Centre / IMF Inflationary pressures are increasing in a number of Low- and Lower-middle-income BSEC countries. The main drivers are high import prices, particularly energy, and increasing consumer demand boosted by remittances. Growth is projected to slow somewhat from 10.6 per cent to 9.2 per cent in 2008.

6. 6 UM-H Upper Middle & High-income countries Key Macroeconomic Variables, 1995-2007 GDP (current prices, USD billion) GDP per capita, PPP (USD) Population (million) 19952007e19952007e Bulgaria13.1395 49410 9737.6 Greece1483561 415635 16711.1 Romania35.51595 71711 07921.6 Russia313.51 2245 94713 432142.1 Serbia..41..7 2657.5 Turkey166.44825 4949 81673.6 Note: e denotes data for 2007 are estimates. Source: IMF, 2008 Source: OECD Development Centre / IMF Widening current account deficits across these countries underline an increasing exposure to international shocks. Strong currency appreciation and import growth led to larger trade deficits. Import prices, particularly tied to energy and import demand, are also rising.

7. 7 Central Asia Boom times for oil exporters Key macroeconomic variables, 1995-2007 GDPGDP per capita, PPP (USD) Populatio n (million) (current prices, USD billion) 1995200719952007 Kazakhstan16.695.535561065815.1 Kyrgyz Rep.1.53.5117123155.3 Tajikistan0.63.466816376.4 Turkmenistan5.926.2309894835.2 Uzbekistan10.220.21277254126.8 Source: IMF, 2008 Regional growth slowed slightly in 2007 to 8.6 per cent, with 7.7 per cent forecast for 2008, mainly because of decelerating Kazakh growth. Inflation is on the rise, mainly due to high energy prices, booming domestic demand and rapid accumulation of forex reserves. Source: OECD Development Centre / IMF

8. 8 Investment Growing fast, yet still oil-focused FDI in the countries of the south Caucasus and Central Asia has been driven by the availability of oil and gas. Privatizations in South East Europe have boosted FDI figures in those countries. Efficiency-seeking and market- seeking FDI (mainly in telecommunication and banking) has been important in non-oil producing countries. The entry of Romania and Bulgaria into EU have been strong drivers of investment for those countries. Outward FDI from the region has also increased, thanks to dynamic MNCs mainly from Russia (78% of total). Source: OECD Development Centre / UNCTAD WIR

9. 9 Pub. finance Increasing access to funding Source: OECD Development Centre / IMF

10. 10 Social indic. A heavy social cost: death rates in BSEC-CA countries Source: OECD Development Centre / IMF

11. 11 Exports Specialisation in BSEC-CA countries Export specialisation (Balassa) Index average 2001-06 SITC group12346 beverages & tobacco crude materials (ex. fuel) mineral fuels animal & vegetable oils manufactured goods Albania 1.93.40.30.11 Armenia 10.73.50.3 3.9 Azerbaijan 0.80.98.82.30.2 Bulgaria 2.51.90.90.71.8 Georgia 18.87.40.40.10.8 Greece 4.61.816.41.5 Kazakhstan 0.22.16.90.11.4 Kyrgyz Rep. 3.53.61.400.7 Moldova 33.32.80.18.70.6 Romania 0.21.80.90.61.4 Russia 0.21.45.30.21.1 Serbia 1.5 0.32.32.6 Tajikistan* 0.27.60.104.4 Turkey 1.10.50.21.21.8 Turkmenistan* 00.99.300.2 Ukraine 1.22.415.23.1 Uzbekistan* 0.6101.50.21.4 Source: OECD Development Centre / Comtrade, 2008 No BSEC-CA countries have any form of specialisation in exports of food and animals (SITC 0), chemical products (SITC 5) or machinery and transport products (SITC 7)

12. 12 Focus Romania in perspective Romania Romania was the second largest FDI recipient in both South Europe and the CIS. This is essentially the result of privatization. Very low labour costs coupled with proximity to the EU market contribute to the strong attraction of Romania for FDI. Nevertheless, higher value-added sectors are also attracting strong investment. Romania needs to comply with E.C rules and regulations on judicial independence, and structural transparency and accountability reforms BSEC-CA 2006 saw a dramatic surge in FDI to the BSEC-CA reegion, raching USD 90 billion Inflows rose in almost all countries, driven by several factors. FDI to UMH-BSEC countries more than doubled in 2006 when it reached USD 76 billion. The principle drivers were the forthcoming accession of Bulgaria and Romania to the European Union, the continuation of the privatization process and new opportunities in extractive industries, especially in Russia. Greece and Turkey recorded their highest-ever FDI inflows, owing to large takeover deals in the financial sector and telecommunication sector (OECD, 2007a).

13. 13 Outlook Looming inflation risks on the horizon The entire BSEC-CA region faces slower growth as a result of the U.S. and Western European downturn. Inflationary pressures are increasing with high import prices, particularly energy, and increasing consumer demand boosted by remittances. The poor are particularly vulnerable people to the effects of higher food and energy prices. BSEC-CA economies will continue to prosper, but challenges are rising

14. 14 Promoting work and well being: an OECD Development Centre Economic Outlook Javier Santiso Director & Chief Development Economist, OECD Development Centre 23 June 2008 Bucharest