Labour shortages driving economic growth? Vasily Astrov - PowerPoint PPT Presentation

Wiener Institut für The Vienna Institute for www.wiiw.ac.at Internationale International Economic Wirtschaftsvergleiche Studies Press conference, 10 November 2016 New wiiw forecast for Central, East and Southeast Europe, 2016-2018 Labour shortages driving economic growth? Vasily Astrov astrov@wiiw.ac.at

2 Despite sluggish global environment … real GDP growth, in % UK USA Euro area China 8 7 6 5 4 3 2 1 0 -1 2012 2013 2014 2015 2016 2017  Source: OECD (2016), Interim Economic Outlook, September.

3 … EU-CEE grows 1.5 pp faster than euro area Quarterly real GDP growth, change in % against preceding year 9 BG CZ HU EE HR LT LV SI 9 PL RO SK 6 6 6 3 3 0 0 -3 -3 -6 -6 1Q 10 1Q 11 1Q 12 1Q 13 1Q 14 1Q 15 1Q 16 1Q 10 1Q 11 1Q 12 1Q 13 1Q 14 1Q 15 1Q 16  Source: National and Eurostat statistics.

4 Western Balkans and Turkey also perform well, CIS countries ‘bottom out’ Quarterly real GDP growth, change in % against preceding year 15 15 AL BA ME BY KZ RU UA TR MK RS XK 10 10 5 5 5 0 0 -5 -5 -10 -10 -15 -15 -20 1Q 10 1Q 11 1Q 12 1Q 13 1Q 14 1Q 15 1Q 16 1Q 10 1Q 11 1Q 12 1Q 13 1Q 14 1Q 15 1Q 16  Source: National and Eurostat statistics.

5 Private consumption: the main engine of growth … GDP growth in 2015-2018 and contribution of individual demand components in pp Household final consumption Change in inventories Gross fixed capital formation 8 Government final consumption Net exports GDP total 6 6 4 2 0 '15 '16 '17 '18 -2 -4 BG HR CZ EE HU LV LT PL RO SK SI EU-CEE Source: wiiw Annual Database incorporating national and Eurostat statistics; own calculations.  Forecasts by wiiw.

6 … except in the CIS GDP growth in 2015-2018 and contribution of individual demand components in pp Household final consumption Change in inventories Gross fixed capital formation Government final consumption Net exports GDP total 8 8 6 6 6 4 4 2 4 0 -2 2 -4 -6 0 -8 '15 '16 '17 '18 -10 -2 -12 -14 -4 -16 AL BA XK MK ME RS TR BY KZ RU UA Western Balkans + TR CIS-3 + UA Source: wiiw Annual Database incorporating national and Eurostat statistics; own calculations.  Forecasts by wiiw.

7 Private consumption fuelled by growing wages … First half of 2016 12 RO 9 ption, LT HU 6 Final household consumpti LV EE HR SK PL AL ME real growth in % CZ MK 3 BG UA SI RS 0 -3 RU -6 -3 0 3 6 9 12 15 18 Average monthly gross wages, real growth in %  Source: wiiw Database incorporating national and Eurostat statistics; wiiw.

8 … as labour markets improve almost everywhere … Unemployment and wage growth Job vacancy rate, in % CZ CZ 8 3.0 Unemployment rate , % 2010 2012 2013 2.5 2011 7 2.0 2014 1.5 6 2015 1.0 5 Un 0.5 0.5 2016 0.0 4 2012Q1 2013Q1 2014Q1 2015Q1 2016Q1 -8 -6 -4 -2 0 2 4 Wages, real growth in % HU HU 12 2.0 2011 2010 2012 11 Unemployment rate , % 2013 1.5 10 9 2014 2015 1.0 8 7 2016 0.5 6 5 0.0 4 2012Q1 2013Q1 2014Q1 2015Q1 2016Q1 -4 -2 0 2 4 6 Wages, real growth in %  Source: wiiw Annual Database incorporating national and Eurostat statistics; wiiw forecasts.

9 … though not in the Baltics (jobs/skills mismatch) Unemployment and wage growth Job vacancy rate, in % LV LV 20 2010 1.8 Unemployment rate , % 1.6 18 1.4 2011 2012 16 1.2 1.0 14 2013 0.8 2014 12 0.6 2015 0.4 0.4 Un 10 10 0.2 2016 8 0.0 -4 -2 0 2 4 6 8 2012Q1 2013Q1 2014Q1 2015Q1 2016Q1 Wages, real growth in % EE EE 2.0 19 Unemployment rate , % 2010 17 1.5 15 2011 13 1.0 2012 11 2013 0.5 2014 9 2015 2016 7 0.0 5 2012Q1 2013Q1 2014Q1 2015Q1 2016Q1 -2 0 2 4 6 8 Wages, real growth in %  Source: wiiw Annual Database incorporating national and Eurostat statistics; wiiw forecasts.

14 On top of that: hikes in minimum wages Monthly gross minimum wages, in national currency, 2013 = 100  Source: National and Eurostat statistics.

15 Why zero inflation despite strong wage growth? Two reasons: • (1) Labour productivity gains – unit labour costs grow less than wages • (2) Rise in unit labour costs partly offset by squeezing profits Bulgaria as a good example 170 170 160 150 140 Average monthly gross wages 130 Unit labour costs, NCU 120 110 GDP deflator 100 90 80 2010 2012 2014 2016 2018 Source: wiiw Annual Database incorporating national and Eurostat statistics; wiiw own calculations;  wiiw forecasts.

19 Investment weakness – but only because of temporary dip in EU transfers Real change in % against preceding year, first half of 2016 BG 20.0 SK CZ 10.0 0.0 SI EE -10.0 GFCF growth -20.0 -30.0 GFCF growth without RO HR the EU transfers effect PL HU LV LT  Source: wiiw Monthly Database incorporating national statistics; EU Commission; wiiw estimations.

20 No credit boom: reduced risks for the future Non-financial corporations, June 2016 Households, June 2016 10 10 ME HR UA MK ME LT 8 8 lated, % p.a. ated, % p.a. RS SK 6 6 MK BG HR RO RO RS RS Policy rate, CPI-deflate Policy rate, PPI-deflate LV LV TR TR RU RU CZ CZ HU HU 4 4 RU RO PL AL SI BG PL 2 HU 2 EE SK LV UA TR AL CZ EE SI LT 0 0 KZ -2 -2 KZ -4 -4 -20 -10 0 10 20 30 -20 -10 0 10 20 30 Stock of loans to households, Stock of loans to non financial corporations, change in % against preceding year change in % against preceding year  Source: wiiw Monthly Database incorporating National Bank statistics; wiiw calculations.

21 Fiscal policy generally growth-supportive Fiscal stance in CESEE in 2016 5 AL 6/2015, in pp of ME Restrictive 4 3 TR Change in budget balance 2016/2 2 2 MK MK BG SI SK 1 LV KZ GDP CZ RU HR PL RS BY 0 HU EE LT XK -1 RO -2 BA UA -3 Expansionary -4 -3 -2 -1 0 1 2 3 4 5 GDP, real growth in 2016, in %  Source: wiiw forecasts.

22 Factors behind fiscal loosening - disappointment with ‘expansionary austerity’ - low borrowing costs First half of 2016 Change in nominal GDP in % against preceding year Yield on Government bonds, % p.a. 30 25 25 20 15 10 5 0 BG HR CZ HU LV LT PL RO SK SI AL BA XK MK ME RS TR BY KZ RU UA Source: wiiw Monthly Database incorporating national statistics; Eurostat; National Banks and National  Ministries of Finance.

23 Main messages � EU-CEE grows by about 3% – 1.5 pp higher than the euro area � Elsewhere in CESEE, growth picked up as well � Labour shortages drive wage growth and private consumption � Labour shortages drive wage growth and private consumption � But: higher wages do not translate into higher prices! � Investment weakness only because of low EU transfers � Fiscal policy supports growth 

24 Outlook for 2017-2018 � EU-CEE: growth will remain strong - labour markets will improve further - investments should recover as new EU transfers become available � � Western Balkans: growth will accelerate - but: weak export base remains a big problem � CIS will gradually recover (except Belarus) - but: geopolitical risks high in both Russia and Ukraine � Turkey heading for a ‘soft landing’ - potentially risks a balance-of-payments crisis 

25 GDP growth, wiiw forecast for 2016-2018 2016 2017 2018 2016 2017 2018 Romania 4.7 3.5 3.8 Latvia 2.4 2.6 2.9 Turkey 3.3 3.0 2.7 Slovenia 2.4 2.6 2.9 Poland 3.2 3.5 3.3 Lithuania 2.3 2.6 3.0 Slovakia 3.2 3.1 3.4 Czech Republic 2.2 2.4 2.6 Bosnia and Herzegovina 3.1 3.3 3.5 Serbia 2.2 2.5 2.5 Bulgaria 3.0 3.0 3.1 Hungary 2.0 2.6 2.9 Albania 3.0 3.3 3.6 Estonia 1.6 2.2 2.3 Montenegro 2.7 3.1 2.9 Ukraine 0.8 1.9 2.4 Kosovo 2.6 3.0 3.2 Kazakhstan 0.4 2.0 3.0 Croatia 2.5 2.7 2.8 Russia -0.8 0.8 1.8 Macedonia 2.5 3.1 3.3 Belarus -2.8 -0.9 1.6  Source: wiiw forecast, November 2016.

26 Thank you for your attention! Visit us at: www.wiiw.ac.at facebook.com/wiiw.economic.studies/ twitter.com/wiiw_news/ 

27 Country codes and abbreviations AL Albania ME Montenegro BA Bosnia and Herzegovina MK Macedonia BG Bulgaria PL Poland BY Belarus RO Romania CZ Czech Republic RS Serbia EE Estonia RU Russia HR Croatia SI Slovenia HU Hungary SK Slovakia KZ Kazakhstan TR Turkey LT Lithuania UA Ukraine LV Latvia XK Kosovo CESEE Central, East and Southeast Europe CIS Commonwealth of Independent States EU-CEE European Union – Central and Eastern Europe 