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Europe and Central Asia Region

“ECA Economic Outlook” By Philippe Le Houérou

Vice President, ECA Region Spring Meetings

April 19, 2013

ECA has seen the slowest recovery since the 2009 crisis

2

The recovery has been weaker in the Central Europe and the Balkans

3

Annual growth (% of GDP)

Fiscal aspects of the crisis and post-crisis period

Fiscal balances (% of GDP)

4

Legacy of the crisis: Public debt levels have risen (except for Turkey) Gross Public Debt, % of GDP, Average

5

NPLs continue to rise in the Balkans and CEE

NPLs (% of total loans)

6

Credit for the private sector is going down in the Baltics and stagnating in CEE and the Balkans

New credit issuance (% change)

7

Unemployment remains stubbornly high and is still rising in the Balkans Unemployment rate (% of workforce)

8

9

Jobs in ECA: Three priority challenges

1. Resuming sustained growth: Ensure macro fundamentals for economic recovery and regain pre-crisis reform momentum

2. Enabling private sector-led job creation: Eliminate impediments to business expansion and entrepreneurship

3. Preparing workers for new jobs: Helping workers acquire skills for the modern workplace and making (formal) work pay by removing disincentives and barriers to work

10

Enabling private sector-led job creation

20

38

18 18

14

9

0

5

10

15

20

25

30

35

40

Czech Republic Kazakhstan

% a

ll w

ork

ers

Want to be Took step Started a business

-16

-12

-8

-4

0

4

8

12

Ukraine

-3

-2

-1

0

1

2

3

4

% a

nn

ual

var

iati

on

in jo

b f

low

s

Poland

Average annual rate of jobs destruction and creation, 2002-2008

% of workers who want to be self-employed, took steps, and actually started a business, 2010

11

83

73

59 57

50

41 40

33

27 25 24 23 22 22 21

18 18 15 13

0

10

20

30

40

50

60

70

80

90

% 1

5-y

ear

old

s w

ho

sco

re “

bel

ow

leve

l 2”

on

PIS

A

read

ing

test

% of 15-year olds that are functionally illiterate, 2009

Too many youth in ECA fall behind in basic cognitive skills

Preparing workers for new jobs: acquiring new skills

12

0

10

20

30

40

50

60

70

80

90

100

Effe

ctiv

e ta

x ra

te (

% g

ross

lab

or

inco

me

)

"Unemployment trap": Average tax wedge for low-wage earners: % earnings lost from taxes on earnings and withdrawn social benefits, 2010

For instance, in Czech Republic, for every Euro of earnings in a formal job, low-wage earners lose about 70 cents from taxes and lost social benefits

Removing disincentives and barriers to labor

force participation and formal employment

Thank you for your attention!

Question time

Annex I: Deleveraging has accelerated in CEE (especially in the Baltics) in the past year

External positions by BIS-reporting banks

(% of GDP)

14

Annex II: ECA -- a multi-speed recovery

15

Annual growth rates: 2010-2012 average, 2013

projection (% of GDP)

Gender

Governance

• Competitiveness:

• Sound macro-fiscal policy

• Quality education, skills, and lifelong learning

• Well-regulated financial systems

• Improved business environment and innovation policies; diversification

• Investments in energy and transport infrastructure

• Social Inclusion:

• Dynamic labor markets

and active labor market policies for job creation

• Quality public services in health and education

• Well-targeted social safety nets

• Fiscally sustainable pension systems

• Financial inclusion and financing for women entrepreneurs

• Climate Action:

• Policy incentives and investments in energy efficiency

•

• Financing for renewable energy

• Climate change mitigation (e.g. re-forestation)

• Climate adaptation investments (climate-smart agriculture, hydro-metrology, disaster risk mitigation)

3 Main Pillars

Annex III: World Bank strategy to reduce poverty and boost shared prosperity in ECA

Sound public financial management Impartial and effective application of laws and regulations

Policies for

boosting women’s

labor force

participation (labor

market reforms,

skills development,

childcare

provision, access

to finance)

Targeted social

assistance to

cushion impact

of energy price

liberalization

Gender-informed

agriculture and

energy projects

to boost

employment