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"Unemployment trap": Average tax wedge for low-wage earners: % earnings lost from taxes on earnings and withdrawn social benefits, 2010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