The Impact of the Financial Crisis on the Former Yugoslav Republic - PowerPoint PPT Presentation

�������� The Impact of the Financial Crisis on the Former Yugoslav Republic of Macedonia European Economic and Social Committee Brussel, 25 September 2009 Bernhard Boehm DG ECFIN, European Commission 1 European Commission, Economic and Financial Affairs

Overview �������� The financial crisis and transmission channels 1. Impact on the economy 2. Policy response and Challenges 3. The role of the Civil Society 4. 2 European Commission, Economic and Financial Affairs

Further information �������� Background Material: EU Spring forecast (excerpt) • 2008 Progress Reports (Economic Chapters) • Internet sites: EU Institutions http://europa.eu/ EU Commission http://ec.europa.eu/ DG ECFIN http://ec.europa.eu/economy_finance/ Disclaimer 3 European Commission, Economic and Financial Affairs

1. The financial crisis and transmission �������� channels 4 European Commission, Economic and Financial Affairs

The financial and economic crisis �������� Crisis started in 2007 already with problems in US • sub-prime mortgage market Turned into a major financial crisis in September • 2008 (Lehman) The following uncertainty (credit squeeze) translated • financial market turbulences into real sector problems Risk of feedback effects from real to financial sector • 5 European Commission, Economic and Financial Affairs

�������� 6 European Commission, Economic and Financial Affairs

2. The impact of the crisis �������� 7 European Commission, Economic and Financial Affairs

2. Impact on the economy: �������� What history tells us ��������� ��������� ��������� ������ �������������� maximum fall in business maximum fall in housing cumulative output gap investment investment average average of in average year of of other in downturn other downturn of other banking in downturn downtur following the downturn following downtur crisis following ns ratio crisis s Ratio the crisis ns ratio United States 1988 - 10,5 - 5,0 2,1 - 2,0 - 1,3 1,5 - 2,5 - 1,1 2,3 Japan 1997 - 11,9 - 6,3 1,9 - 5,5 - 4,3 1,3 - 5,4 - 1,0 5,2 Spain 1977 - 28,6 - 16,8 1,7 - 5,0 - 3,2 1,6 - 1,8 - 0,2 7,3 Finland 1991 - 27,1 - 8,1 3,3 - 9,1 -4,8 1,9 - 4,0 - 1,1 3,7 Norway 1991 - 11,0 - 5,2 2,1 - 5,6 - 6,5 0,9 - 3,2 - 1,3 2,4 Ave - 17,8 - 7,4 2,1 - 5,5 - 3,8 1,6 - 3,5 - 1,0 4,0 ����������������� 8 European Commission, Economic and Financial Affairs

Economic Impact on the former Yugoslav �������� Republic of Macedonia Key features of the economy • Small open economy (Malta, Baltic countries) • Export structure highly specialised • High structural unemployment • Weak capital base • Low economic growth 9 European Commission, Economic and Financial Affairs

How did the country perform so far ? �������� Real convergence II Per-capita GDP, PPS, EU-27 = 100 140.0 BG IE CZ 120.0 EE IE EL IT 100.0 IT EL SI CY LV CZ LT 80.0 PL SK PT PT HR RO EE 60.0 PL LT SI LV SK TR HR BG 40.0 MK RO MK TR 20.0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Source: EU Spring 2009 forecast 10 European Commission, Economic and Financial Affairs

Transmission Channels �������� Countries “import” global crisis through various channels: • Wealth effects • Income effects • Trade channel 11 European Commission, Economic and Financial Affairs

Transmission channel: Wealth �������� Stock market performance 2005-01-01 = 100 1000.0 900.0 800.0 700.0 HR 600.0 MK* TR 500.0 400.0 300.0 200.0 100.0 0.0 5 5 5 5 5 5 6 6 6 6 6 6 7 7 7 7 7 7 8 8 8 8 8 8 9 9 9 9 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 - - - - - - - - - - - - - - - - - - - - - - - - - - - - v s i l t v v s i l t v v s i l t v v s i l t v v s i l a i p a i p a i p a i p a i u u u u u n r o n r o n r o n r o n r m m m m m a j e a j e a j e a j e a j a n a n a n a n a m s m s m s m s m j j j j j 12 European Commission, Economic and Financial Affairs

Transmission channel: Capital flows �������� Capital Account: Key Inflows 50.00 40.00 30.00 20.00 10.00 in % of GDP 0.00 -10.00 Private Transfers (Workers remittances, etc.) -20.00 Direct investment, net Portfolio investment, net -30.00 Other investment, net -40.00 -50.00 5 5 5 5 5 5 6 6 6 6 6 6 7 7 7 7 7 7 8 8 8 8 8 8 9 9 9 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 - - - - - - - - - - - - - - - - - - - - - - - - - - - v s i l t v v s i l t v v s i l t v v s i l t v v s i a i a i a i a i a p p p p n r u o n r u o n r u o n r u o n r a m e a m e a m e a m e a m a j n a j n a j n a j n a m s m s m s m s m j j j j j 13 European Commission, Economic and Financial Affairs

Transmission channel: Income abroad �������� Current transfers 35.00 30.00 25.00 in % of GDP 20.00 15.00 10.00 Private Transfers (Workers remittances, etc.) 5.00 0.00 5 5 5 5 5 5 6 6 6 6 6 6 7 7 7 7 7 7 8 8 8 8 8 8 9 9 9 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 - - - - - - - - - - - - - - - - - - - - - - - - - - - v l v l v l v l v s i t v s i t v s i t v s i t v s i a i p a i p a i p a i p a n r u o n r u o n r u o n r u o n r a m e a m e a m e a m e a m a j n a j n a j n a j n a m s m s m s m s m j j j j j 14 European Commission, Economic and Financial Affairs

Transmission channel: Trade �������� Merchandise Export, Jan 2005=100 240 220 200 180 160 140 120 100 80 avr-05 oct-05 avr-06 oct-06 avr-07 oct-07 avr-08 oct-08 avr-09 janv-05 juil-05 janv-06 juil-06 janv-07 juil-07 janv-08 juil-08 janv-09 juil-09 HR Exp FYROM Exp TR Exp 15 European Commission, Economic and Financial Affairs

Impact on economy �������� Industrial Production 150.0 140.0 HR 130.0 FYROM TR 120.0 110.0 Jan 2008 = 100 100.0 90.0 80.0 70.0 60.0 50.0 janv- févr- ma avr- mai- juin- juil- août- sept- oct- nov- déc- janv- févr- ma avr- mai- juin- juil- 08 08 rs-08 08 08 08 08 08 08 08 08 08 09 09 rs-09 09 09 09 09 16 European Commission, Economic and Financial Affairs

Impact on economy �������� GDP growth 15.0 10.0 5.0 % yoy 0.0 -5.0 HR MK* TR -10.0 -15.0 6 6 6 6 6 7 7 7 7 7 7 8 8 8 8 8 8 9 9 9 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 - - - - - - - - - - - - - - - - - - - - l v l v l v s i t v s i t v s i t v s i a i p a i p a i p a u n u n u n r o r o r o r m m m m a e a e a e a j n a j n a j n a m s m s m s m j j j 17 European Commission, Economic and Financial Affairs

Impact on economy �������� Unemployment 40.0 39.0 UR (registered unemployed) UR (actively seeking employment) 38.0 UR (LFS) 37.0 36.0 35.0 34.0 33.0 32.0 31.0 30.0 7 7 7 7 7 7 7 7 7 7 7 7 8 8 8 8 8 8 8 8 8 8 8 8 9 9 9 9 9 9 9 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - v r s r i n l t t t v c v r s r i n l t t t v c v r s r i n l a i a i a i v v û p c v v û p c v v n r i u o é n r i u o é n r i u é a a m u o e o é a a m u o e o é a a m u a j n d a j n d a j f m j a s f m j a s f m j j j j 18 European Commission, Economic and Financial Affairs

Impact on economy �������� Foreign exchange reserves Jan 2005 = 100 240.0 220.0 200.0 180.0 160.0 140.0 HR 120.0 FYROM TR 100.0 80.0 60.0 5 5 5 5 5 5 6 6 6 6 6 6 7 7 7 7 7 7 8 8 8 8 8 8 9 9 9 9 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 - - - - - - - - - - - - - - - - - - - - - - - - - - - - v s i l t v v s i l t v v s i l t v v s i l t v v s i l a i p a i p a i p a i p a i u u u u u n r o n r o n r o n r o n r m e m e m e m e m a j a j a j a j a j a n a n a n a n a m s m s m s m s m j j j j j 19 European Commission, Economic and Financial Affairs

Why not hit harder?? �������� • Statistical illusion? • Export specialisation? • Built-in “stability”? • Government activities? 20 European Commission, Economic and Financial Affairs