Europe

and

Central Asia

Presentation by Laura Tuck,

Vice President, ECA;

and Hans Timmer,

Chief Economist, ECA.

April 9, 2014

Meetings

2

Emerging Europe And Central Asia

At a Crossroads

Growth outlook in 2014 for Emerging Europe and

Central Asia is much lower than what we expected—

particularly in the eastern part of the region—and is

projected to be the lowest among all developing

regions.

The region needs to pursue tough reforms to set the

stage for boosting shared prosperity and creating jobs.

This will also help build resilience to future shocks and

build the foundation for strong growth.

Political tensions may affect not only the Russian and

Ukrainian economies, but also other economies in the

region.

6.0

4.7 4.4

9.6

5.1

9.9

4.1

4.9

-0.7

8.3

4.6

7.2

2.6 2.4

1.5

7.4

3.5

4.2

2.5 2.1

2.6

7.2

4.7 4.8

2.3 1.9

3.3

7.1

5.3 5.2

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0

Latin America &Caribbean

Europe & CentralAsia

Middle East & N.Africa

East Asia & Pacific Sub-Saharan Africa South Asia

GDP Growth (%), weighted average by region

2010

2011

2012

2013

2014p

Economic Growth in ECA is expected to be the lowest among all

developing regions in 2014

Source: World Bank

High and low

case scenarios

3

Many CIS countries and Turkey’s growth

prospects have been revised down

2014 Real GDP Growth Projections

Note: CIS includes Georgia and Ukraine

-6

-4

-2

0

2

4

6

8

10

12

Cro

atia

Slo

ven

ia

Bulg

aria

Czech R

epu

blic

Hu

nga

ry

Ro

man

ia

Slo

vak R

epub

lic

Esto

nia

Pola

nd

Lithu

ania

La

tvia

Serb

ia

Bosnia

an

d H

erz

eg

ovin

a

Alb

ania

Mo

nte

neg

ro

FY

R M

ace

don

ia

Kosovo

Ukra

ine

Bela

rus

Ru

ssia

Mo

ldova

Kyrg

yz R

ep

ublic

Arm

enia

Geo

rgia

Aze

rbaija

n

Kazakhsta

n

Tajik

ista

n

Uzbe

kis

tan

Turk

men

ista

n

Turk

ey

EU 11 Western Balkans CIS + Turkey

2014 (April 2013 Projection) 2014 (April 2014 Projection)

4

….and there is a wide gap between high-case

and low-case scenarios, particularly for Ukraine,

Russia and Turkey

Note: CIS includes Georgia and Ukraine

-6

-4

-2

0

2

4

6

8

10

12

14C

roa

tia

Slo

ven

ia

Bulg

aria

Czech R

epu

blic

Hu

nga

ry

Ro

man

ia

Slo

vak R

epub

lic

Esto

nia

Pola

nd

Lithu

ania

La

tvia

Serb

ia

Bosnia

an

d H

erz

eg

ovin

a

Alb

ania

Mo

nte

neg

ro

FY

R M

ace

don

ia

Kosovo

Ukra

ine

Bela

rus

Ru

ssia

Mo

ldova

Kyrg

yz R

ep

ublic

Arm

enia

Geo

rgia

Aze

rbaija

n

Kazakhsta

n

Tajik

ista

n

Uzbe

kis

tan

Turk

men

ista

n

Turk

ey

EU 11 Western Balkans CIS + Turkey

2014 Real GDP Growth Range: High- and Low-case scenarios

5

Growth outlook in 2014 for Emerging

Europe and Central Asia is much lower

than what we expected—particularly in

the eastern part of the region—and is

projected to be the lowest among all

developing regions.

6

95.00

100.00

105.00

110.00Industrial Production Index* (January 2012=100)

CIS**

CEE**

WesternEurope

*The industrial sector includes manufacturing, mining, and utilities. Underlying data is in constant US$, seasonally adjusted.

** CIS includes Russia, Armenia, Ukraine and Kazakhstan, CEE includes Slovak Republic, Hungary, Poland, Bulgaria, Croatia

and Romania

Industrial Production has suddenly slowed for

the CIS countries

7

Spreads have increased in Turkey, Russia and Ukraine

Courtesy JPMorgan Index Research, Copyright 2014

150

350

550

750

950

1150

1350

150

200

250

300

350

400

450

Rusia Strip Sprd (bps) EMBI Global Brazil/China/India Strip Sprd (bps)

Turkey Strip Sprd (bps) Ukraine Strip Sprd (bps), right axis

BRICs less

Russia

Russia Turkey

Ukraine

8

Nominal exchange rates have weakened

-30

-20

-10

0

10

20

30

Cze

ch R

epublic

Hu

nga

ry

Ro

mania

Po

land

Cro

atia

La

tvia

Lith

uania

Alb

ania

Bu

lga

ria

Esto

nia

Slo

va

kia

Ma

ce

do

nia

, F

YR

Ka

zakhsta

n

Ru

ssia

n F

edera

tion

Ukra

ine

Be

laru

s

Kyrg

yz R

epublic

Ge

org

ia

Aze

rbaija

n

Arm

enia

Turk

ey

Emerging Europe CIS

Exchange Rate (LCU-US$, March 2014 / March 2013)

No

min

al D

eva

luatio

n

No

min

al A

pp

recia

tio

n

Note: CIS includes Georgia and Ukraine

9

The region needs to pursue tough

reforms to set the stage for boosting

shared prosperity and creating jobs. This

will also help build resilience to future

shocks and build the foundation for

strong growth.

10

ECA was the hardest hit and has been the

slowest to recover since the Crisis

Real GDP growth (%)

Source: World Bank

-8

-6

-4

-2

0

2

4

6

8

10

12

14

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014p

East Asia & Pacific Europe & Central Asia Latin America & Caribbean

Middle East & N. Africa South Asia Sub-Saharan Africa

11

Current Account balance as percent of GDP

Current account deficits remain large

compared to other regions

-15

-10

-5

0

5

10

15

20

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

East Asia

Europe & Central Asia

Latin America and the Caribbean

Middle East and North Africa

Sub-Saharan Africa

South Asia

Source: World Bank

*Excludes Russian Federation

**Excludes China 12

Ongoing banking sector weakness has

contributed to low private credit growth

Source: World Bank

Note: East Asia excludes China, CIS includes Georgia and Ukraine

0

2

4

6

8

10

12

14

0

2

4

6

8

10

12

14

16

Western Balkans EU 11 CIS RussianFederation

Turkey East Asia

An

nu

al

Gro

wth

of

Do

mesti

c C

red

it t

o P

riv

ate

Secto

r as a

sh

are

of

GD

P

NP

Ls %

of

To

tal L

oan

s

NPLs % of Total Loans, 2012 or latest

Annual Growth of Domestic Credit to Private Sector as a share of GDP, 2008-2012 average

13

Unemployment has stabilized at very high

levels across most of ECA economies

Source: Calculation based on ILO seasonally adjusted data.

0

2

4

6

8

10

12

14

16

18

20

22

2008 Q12008 Q22008 Q32008 Q42009 Q12009 Q22009 Q32009 Q42010 Q12010 Q22010 Q32010 Q4 2011 Q12011 Q2 2011 Q32011 Q4 2012Q1 2012Q2 2012Q3 2012Q4 2013 Q12013 Q2

Un

em

plo

ym

en

t ra

te (

late

st a

va

ilab

le)

CIS, UKR Western Balkans and Turkey Non-European OECD

Non-ECA Europe Baltics ECA

14

Which is putting downward pressure on prices

0

1

2

3

4

5

6

7

8

9

10

Consumer Price Index (Annual Rate of Change)

Euro area (18 countries) US and UK EU11 CIS Balkans Turkey

Note: CIS includes Georgia and Ukraine

15

While structural reforms took place, it has

slowed and large gaps remain for the CIS

1.5

1.7

1.9

2.1

2.3

2.5

2.7

2.9

3.1

3.3

3.5

2000200120022003200420052006200720082009201020112012

Governance and Enterprise Restructuring

CIS Emerging Europe

EBRD Transition Indexes

The measurement scale for the indicators ranges from 1 to 4+, where 1 represents little or no change from a rigid centrally planned

economy and 4+ represents the standards of an industrialized market economy. CIS includes Georgia and Ukraine.

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

2000200120022003200420052006200720082009201020112012

Large Scale Privatization

CIS Emerging Europe

16

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0Small Scale Privatization

CIS Emerging Europe

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

Price Liberalization

CIS Emerging Europe

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

Trade and Foreign Exchange System

CIS Emerging Europe

1.51.71.92.12.32.52.72.93.13.33.5

Competition Policy

CIS Emerging Europe

….including

CIS includes Georgia and Ukraine. 17

Resource-rich economies of CIS are facing head-

winds from soft commodities prices

-40

-30

-20

-10

0

10

20

30

40

50

2008 2009 2010 2011 2012 2013e 2014f 2015f 2016f

Commodity Prices, Actual and Forecast Changes

Non-oil commodities (percent change) Oil price (percent change)

Forecast

Source: World Bank

18

Political tensions may affect not only the

Russian and Ukrainian economies, but

also other economies in the region.

19

Lower growth in Russia likely to suppress

economic activity among trading partners

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

Bela

rus

Ukra

ine

Mo

ldova

Arm

enia

Kazakhsta

n

Kyrg

yz R

ep

ublic

Tajik

ista

n

Turk

ey

Geo

rgia

Aze

rbaija

n

Slo

vak R

epub

lic

La

tvia

Esto

nia

Slo

ven

ia

Czech R

epu

blic

Lithu

ania

Pola

nd

Hu

nga

ry

Ro

man

ia

Bulg

aria

Ma

ce

don

ia, F

YR

Cro

atia

Bo

sn

ia a

nd

He

rze

go

vin

a

Alb

ania

Fin

land

Ita

ly

Icela

nd

Germ

any

Fra

nce

Sw

ede

n

Austr

ia

De

nm

ark

Spain

Belg

ium

Un

ite

d K

ing

dom

Gre

ece

Ne

therl

and

s

No

rwa

y

Sw

itzerl

and

Port

ug

al

Irela

nd

Ma

lta

Cypru

s

Lu

xe

mbo

urg

CIS + Turkey Emerging Europe Western Europe

Exports to Russia (% of total exports, 2012)

Note: CIS includes Georgia and Ukraine

20

-4

-2

0

2

4

6

8

East Asia &Pacific

Europe &Central Asia

Latin America &Caribbean

South Asia Sub-SaharanAfrica

Private Sector Investment (% of GDP)

Public Sector Consumption (% of GDP)

Public Sector Investment (% of GDP)

Private investment fell the most and can

disappoint further

Source: World Bank

Change 2007 to 2012

21

…to build economic resilience and set

the stage for a robust shared prosperity,

reinvigorating reforms is critical.

Bottom-Line….

ECA is at a cross-roads…

22

Thank You

23