Central Europe and Russia Two Years After EU Enlargement

Transcription

1 Central Europe and Russia Two Years After EU Enlargement Zbyszko Tabernacki, CFA Country Intelligence Group Scania Capital Markets Day Prague, May 17, 2006 Copyright 2006 Global Insight, Inc.

2 Outline of the Presentation 2006 Another Stellar Year for the Global Economy? What Is Driving Growth in Central Europe? Is Euro Adoption No Longer a Priority? The Baltics Boom Without Limits? Special Topic Russia Enjoying The Riches, But What Next? Copyright 2006 Global Insight, Inc. 03/2006 2

3 Global Outlook: Relatively Clear Sailing for Another Year or Two Copyright 2006 Global Insight, Inc.

4 Growth in the World Economy Surprises On The Upside (Real GDP, percent change) Copyright 2006 Global Insight, Inc. 03/2006 4

5 Despite Inflation-Adjusted Oil Prices Reaching Their Highest Level In 20 Years 90 (WTI price, $ per barrel) Nominal $ Real (2004)$ Copyright 2006 Global Insight, Inc. 03/2006 5

6 Growth Remains Very Uneven Across the World 11.0 (Real GDP, percent change) NAFTA Latin America Western Europe Central Europe Russia Japan China Copyright 2006 Global Insight, Inc. 03/2006 6

7 Emerging Europe: Poised To Benefit From Eurozone s Short-Lived Rebound Copyright 2006 Global Insight, Inc.

8 Impressive Expansion Across The Board (Real GDP Growth, annual percentage change) Czech Republic Estonia Hungary Latvia Lithuania Poland Slovakia Slovenia Russia Copyright 2006 Global Insight, Inc. 03/2006 8

9 Following Pre-Accession Surge, Real Export Growth Moderates, Becomes More Predictable Real growth in exports of goods and services (percentage growth y/y) Germany (imports, real growth) Hungary Slovakia Poland Czech Republic Q1-03 Q2-03 Q3-03 Q4-03 Q1-04 Q2-04 Q3-04 Q4-04 Q1-05 Q2-05 Q3-05 Q4-05 Q1-06 Copyright 2006 Global Insight, Inc. 03/2006 9

10 The Enlargement Had No Impact on the Geographic Structure of Exports from New Member States EU-15 EU-8 Russia Rest of the World 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Czech Rep 2002 Czech Rep 2005 Slovakia 2002 Slovakia 2005 Slovenia 2002 Slovenia 2005 Copyright 2006 Global Insight, Inc. 03/

11 Following a Dip In 2003, FDI Flows Rising Sharply in the Last Two Years Annual Inflow of Foreign Direct Investment (US$ millions) Poland Czech Republic Hungary Slovakia China Copyright 2006 Global Insight, Inc. 03/

12 Inflation Restrained by Stronger Currencies Despite Higher Oil Prices; Core Inflation Retreats CPI (y-o-y change in %) 12 Poland Hungary Czech Republic Slovakia Sep-02 May Sep-04 May Copyright 2006 Global Insight, Inc. 03/

13 EU-4 Struggle With Public Finances Budget Balance As % of GDP ESA-95 Methodology F Cyprus Czech Republic Estonia Hungary Latvia Lithuania Malta Poland Slovakia Slovenia Copyright 2006 Global Insight, Inc. 03/

14 Current Account Deficits Exceedingly High For the Baltics, Slovakia and Hungary Annual Current Account Deficits (% of GDP) Slovenia Poland Czech Rep. Lithuania Hungary Slovakia Estonia Latvia Copyright 2006 Global Insight, Inc. 03/

15 In 2006, Growth Will Remain Enviable, Inflationary Pressures Modest; Fiscal Challenges Remain In most of region, growth will be steady; a major rebound in Poland an exception rather than a rule No increase in underlying inflationary pressures in 2006 while core inflation retreats further in parts of the region Monetary authorities likely to accommodate robust growth but need to monitor fiscal performance, currency movements While Slovakia on track for euro adoption, other large New Member States opt to defer due to potential political consequences of accelerated fiscal reform Copyright 2006 Global Insight, Inc. 03/

16 Except for Slovakia, Euro Adoption Schedules to Slip in Central Europe Czech Republic--2010: Preliminary 2005 figure for public finance deficit below criterion, but due to widen. Finance ministry projects 2006 deficit at 3.8% of GDP. Political feasibility of needed reform doubtful. Euro in 2011 or 2012? Hungary--2010: Public finance deficit in 2005 at 6.1% after EU disallows off-budget expenditures. Government projects 4.7% in 2006, to 3% by 2008, but broad structural fiscal reforms required Opposition already moots delay. Poland Needed reforms already postponed. New government gives greater priority to economic growth than to budget consolidation or euro adoption Copyright 2006 Global Insight, Inc. 03/

17 The Baltics - Key Macro Trends Sound growth, well above EU average, accelerated further in 2005, expected to continue at only slightly slower pace this year The negative impact of high energy prices of consumer prices pushes back planned euro adoption Healthy fiscal stance in Estonia, but inability to deliver balanced budgets in Lithuania and Latvia Very high trade and current account deficits, but export growth at least outpaces imports Need to control consumer credit boom, especially in Latvia Copyright 2006 Global Insight, Inc. 03/

18 Strong Forecasted Growth through Medium-Term is Broad-Based, Sustainable Benefits of privatization and restructuring, implementation of EU requirements, and FDI result in higher productivity and rapid growth in both industry and services Domestic demand remains strong on back of investment: Strong investment due to private-sector activity, plus public-sector investment related to EU co-financing External demand also contributes: exports will grow strongly as Western Europe and Scandinavia recover, and some re-expansion into booming Russian market occurs Copyright 2006 Global Insight, Inc. 03/

19 Global Insight Forecast for Selected New EU Economies (in percent) Czech Republic 2006F 5.0 GDP growth 2007F F 2.5 Average CPI 2007F 2.7 Estonia Hungary Latvia Lithuania Poland Slovakia Slovenia Copyright 2006 Global Insight, Inc. 03/

20 Russia: Enjoying the Riches, But What Next? Copyright 2006 Global Insight, Inc.

21 Prospects for Russia %chya F GDP Consumer Demand Fixed Investment Driven largely by energy sector, but impressive growth to moderate further on capacity constraints and competitive challenge to manufacturers. Investment boom decelerates as state intervention in private sector grows, reform stagnates. Consumer demand is strong, supported by government spending on the back of solid tax revenues Copyright 2006 Global Insight, Inc. 03/

22 Households Disposable Incomes Surge 400 (2000 = 100) GDP $Wage Copyright 2006 Global Insight, Inc. 03/

23 Manufacturers Coping with Rising Input Prices, Stronger Ruble (Jan 2003 = 100) Apr- 03 Jul- 03 Oct Apr- 04 Jul- 04 Oct Apr- 05 Jul- 05 Oct Transport Tariffs Prod. Prices Real Eff. $ Xrate Copyright 2006 Global Insight, Inc. 03/

24 Surging Commodity Export Revenues Boosting the Ruble Apr- 03 Jul- 03 Oct Apr- 04 Jul- 04 Oct Apr- 05 Jul- 05 Oct Rubles per U.S. Dollar Rubles per Euro Copyright 2006 Global Insight, Inc. 03/

25 CBR Has Sought to Temper Real Effective Appreciation, Boosting Money Aggregates CBR purchases foreign exchange with largely unsterilized injections of rubles Market for treasury bills still reflects 1998 virtual default Major approach to compensate has been to run a government budget surplus, accumulate Stabilization Fund to tie up rubles As inflation targets missed, CBR tries to refocus policy, but political pressure to protect domestic industry persists Copyright 2006 Global Insight, Inc. 03/

26 Strong Monetary Growth Preserves Inflationary Pressures (Year-on-year growth, percent) Jul Jul Jul Jul Jul Jul CPI (Left scale) M1 (Right scale) Copyright 2006 Global Insight, Inc. 03/

27 Our Medium-Term Scenario Oil prices do not begin to decline before 2007 and then only very modestly Despite strengthening ruble, higher input prices, most Russian manufacturers remain competitive Current account surplus will slide modestly after 2006 Active debt management, fiscal surpluses continue to make Russia more creditworthy, but fiscal stance will loosen further under political pressure to boost living standards Putin government lends qualified support to pro-market initiatives, while more statist approach to economic development evident Copyright 2006 Global Insight, Inc. 03/

28 Growth Will Be Moderate, But Remain Very Respectable in Medium Term 7.5 (Annual percent change) GDP Industrial Output Copyright 2006 Global Insight, Inc. 03/