bosnia and herzegovina serbia montenegro kosovo fyr macedonia albania

100 Pages·2015·1.16 MB·English

SERBIA
BHOESRNZIEAG AONVDI NA
MONTENEGRO KOSOVO
FYR MACEDONIA
ALBANIA

Report No. 99668-ECA
South East Europe
Regular Economic Report No.8
Growth Recovers, Risks Heighten
Fall 2015
Acknowledgments
This Regular Economic Report (RER) covers economic developments, prospects, and economic
policies in six South Eastern European countries (SEE6): Albania, Bosnia and Herzegovina, Kosovo,
FYR Macedonia, Montenegro, and Serbia.
The report is produced twice a year by World Bank staff economists working on the SEE6 countries.
The team of authors comprises Gallina A. Vincelette (task team leader and lead author), Anil Onal
(lead author), Barbara Cunha (lead author), Ashley Taylor (lead author), Agim Demukaj, Aida
Gjika, Sandra Hlivnjak, Sanja Madžarević-Šujster, Suzana Petrović, Lazar Šestović, Hilda Shijaku,
and Bojan Shimbov. Maria Davalos, Trang Van Nguyen, Cesar A. Cancho, Alexandru Cojocaru,
Monica Robayo and William Seitz prepared the regional poverty trends (Spotlight); Anil Onal (lead
author) and Johannes Koettl the note on aging (Special Topic); Ilias Skamnelos, Johanna Jaeger, and
Jane Bogoev contributed to the financial sector boxes; Anna Raggl and Pegi Yilli provided inputs on
demographic and migration issues. Anne Grant provided assistance in editing, and Budy Wirasmo
and Robert Waiharo in designing this report. Valentina Martinovic, Nejme Kotere, Samra Bajramovic,
Ivana Bojic, Enkelejda Karaj, Hermina Vukovic Tasic, Jasminka Sopova, Boba Vukoslavovic, and
Dragana Varezić assisted the team.
Dissemination of the report and external and media relations are managed by an External
Communications team of Lundrim Aliu, Anita Božinovska, Paul A. Clare, Ana Gjokutaj, Jasmina
Hadžić, Elena Karaban, Artem Kolesnikov, Andrew Kircher, Vesna Kostić, John Mackedon, Mirjana
Popović, and Sanja Tanić.
The team is grateful to Ellen Goldstein (Country Director, South Eastern Europe), Satu Kähkönen
(Director, Macroeconomics and Fiscal Management Global Practice), Ivailo Izvorski (Practice
Manager, Macroeconomics and Fiscal Management Global Practice) and the South Eastern Europe
Country Management team for their guidance in preparation of this report. The team is also thankful
for comments on earlier drafts of this report received from SEE6 Central Banks and Ministries of
Finance.
This and previous SEE RERs may be found at: www.worldbank.org/eca/seerer.
Standard Disclaimer:
This volume is a product of the staff of the International Bank for Reconstruction and Development/
The World Bank. The findings, interpretations, and conclusions expressed in this paper do not
necessarily reflect the views of the Executive Directors of The World Bank or the governments they
represent. The World Bank does not guarantee the accuracy of the data presented in this work. The
boundaries, colors, denominations, and other information shown on any map in this work do not
imply any judgment on the part of The World Bank concerning the legal status of any territory or
the endorsement or acceptance of such boundaries.
Copyright Statement:
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Washington, DC 20433, USA, fax [phone], e-mail [email protected].
SOUTH EAST EUROPE REGULAR ECONOMIC REPORT NO.8
Contents
Overview 1
1. Strengthening Economic Recovery 7
Investment Boost to Growth 9
Favorable International Economic Dynamics 13
Economic Growth Gaining Momentum, but with Medium-term Risks 18
2. Policies for Income Growth and Competitiveness 23
Mixed Progress on Fiscal Consolidation 25
Pressures on Monetary and Exchange Rate Policies 27
Asset Quality Concerns and Financial Sector Support for Growth 29
Structural and Demographic Issues 33
Spotlight: Poverty Trends and Expected Developments 39
Poverty Trends 41
Labor Markets and Poverty 42
Poverty Outlook 44
SEE6 Country Notes 47
Albania 49
Bosnia and Herzegovina 54
Kosovo 60
FYR Macedonia 66
Montenegro 72
Serbia 78
SEE6: Key Economic Indicators 85
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CONTENTs
GROWTH RECOVERS, RISKS HEIGHTEN
List of Figures
Figure 1.1: After a year of stagnation, the economies of SEE6 are recovering in 2015 9
Figure 1.2: While recovering investment drives growth… 10
Figure 1.3: ...the contribution of net exports remains limited 10
Figure 1.4: In most of the SEE6, employment, while improving, remains below pre-
crisis levels… 12
Figure 1.5: ...and the unemployment rate is stubbornly high 12
Figure 1.6: Labor market participation is low, especially for women… 12
Figure 1.7: …and almost half of the youth labor force is unemployed 12
Figure 1.8: SEE6 income growth since 2008 has been higher than the EU average,… 13
Figure 1.9: ...but faster income convergence to the EU requires a sharp improvement
in growth rates 13
Figure 1.10: Major export partner growth pick up moderately, but remain well below
pre-crisis levels 15
Figure 1.11: Most of the region has benefited from declining oil import prices 15
Figure 1.12: Marked depreciation of exchange rates against the dollar and the euro 15
Figure 1.13: Real effective exchange rate movements have been more muted 15
Figure 1.14: Current account imbalances have largely narrowed since 2008… 16
Figure 1.15: …but the adjustment is stalling in 2015 16
Figure 1.16: US dollar yields have exceeded euro yields, although both have picked up recently 17
Figure 1.17: External public debt has picked up since 2011 17
Figure 1.18: Exposure to depreciations against the dollar is limited, except in Serbia 17
Figure 1.19: Currency weakness has offset some of the declines in global commodity
price indices 18
Figure 1.20: Energy price inflation has been less volatile while food price inflation started to fall 18
Figure 2.1: Fiscal imbalances remain high in 2015 27
Figure 2.2: Fiscal consolidation with mixed results in SEE6 in 2015 27
Figure 2.3: The fiscal burden of wage and social spending, including pensions, is significant 27
Figure 2.4: High levels of public debt rise further in 2015 27
Figure 2.5: The sizeable rise in NPLs following the financial crisis have yet to be addressed 29
Figure 2.6: Private credit growth in the region is generally muted 31
Figure 2.7: Income convergence of the SEE6 with the EU has slowed… 33
Figure 2.8: …as growth in the region has stalled since the global financial crisis 33
Figure 2.9: Working age emigrants from Albania and Serbia tend to be better
educated than their counterparts at home 36
Figure S.1: Economic Growth and Poverty 41
Figure S1.2: Household Income by Source in SEE6 43
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CONTENTs
SOUTH EAST EUROPE REGULAR ECONOMIC REPORT NO.8
List of Figures (continued)
Albania 49
Real GDP, annual growth rates and Economic Sentiment Indicator 49
Fiscal Revenues, Expenditures, and Overall Balance 50
Sectoral contributions to GVA growth (production side) 52
Monetary aggregates 52
Confidence Survey indicators 52
Headline inflation 52
Unemployment and Employment 52
Public Debt 52
CAD, FDI and other investments 52
Bosnia and Herzegovina 54
Selected Financial Soundness Indicators 56
Real GDP growth 58
Agriculture, manufacturing and energy 58
Consumer prices 58
VAT 58
General government fiscal balance 58
Exports and imports 58
Real and nominal effective exchange rate index 58
Share of foreign-currency indexed loans in total loans 58
Kosovo 60
Real GDP Annual Growth Rates, Kosovo, 2008–15 60
Growth in Aggregate Demand, 2011–14 64
Growth in the Economy by Sector, 2010–14 64
Current Account Balance and FDI, 2011–15 64
General Government Deficit 64
Annual Growth in Loans, 2012–15 64
General Government Debt, 2008–14 64
Nonperforming Loans, 2008–15 64
CPI and PPI. 2011–14 64
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CONTENTs
GROWTH RECOVERS, RISKS HEIGHTEN
List of Figures (continued)
FYR Macedonia 66
Contribution to GDP growth by sectors 66
Business tendencies in the manufacturing industry 70
Labor market developments 70
CPI and its main components 70
Current account balance, trade deficit and private transfers 70
Central Government budget execution 70
Public debt by government levels 70
Credit growth and contribution to credit growth 70
Non-performing loans 70
Montenegro 72
Real GDP, annual growth rates 72
Current account balance 73
High frequency data, trend-cycle adjusted series 76
External trade 76
Labor market, administrative data 76
General government deficit 76
Labor market, survey-based data 76
General government debt 76
Loans and deposits, annual growth 76
CPI and PPI, annual growth rates 76
Serbia 78
Real GDP Growth 79
Inflation 80
Industrial output growth 82
Unemployment rate 82
Nominal loan growth 82
Export value growth 82
Quarterly fiscal deficits 82
Government debt-to-GDP 82
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CONTENTs
SOUTH EAST EUROPE REGULAR ECONOMIC REPORT NO.8
List of Tables
Table 0.1: Expectations for sustained recovery of growth sustained through 2017 3
Table 1.1: The recovery in growth is projected to be sustained through 2017 19
Table 2.2: Macro dynamics are challenging for monetary policy management in non-
euro countries 28
Table B2.4.1: Economic Reform Programs for SEE6, 2015 37
SEE6: Key Economic Indicators 87
List of Boxes
Box 1.1: The Economic Cost of Gender Gaps in SEE6 11
Figure B1.1: Gender Gaps and Income per Capita 11
Figure B1.2: Income per Capita by Age Group 11
Box 1.2: SEE6 and Migration 21
Box 2.2. Safeguarding Financial Stability in SEE6 30
Box 2.3. Options for solvent and profitable Greek Subsidiaries 32
Box 2.4: EU Council Conclusions on SEE6 Economic Reform Programs 37
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CONTENTs