Romania. Paving the way to EURO adoption. October 2018

Transcription

1 Romania Paving the way to EU adoption October 218

2 In most non EA NMS a wait and see approach seems to prevail Initial target 214 Date of setting the initial target 27 Convergence Program Price Stability Maastricht Criteria Convergence** Ex rate Stability* Government balance Government debt Long-term interest rates Current intention No target date EU Founders Early joiners Year of EU currency adoption Late comers >2 HU Pre accession Economic Program No target date CZ 29 / Euro Accession Strategy 24 Pre accession Economic Program No target date Intention to join ERM II by July 219 PL HR 28 / Pre accession Economic Program No target date No target date *None of the countries assessed participates in ERM II. However, fluctuations against EU do not exceed ±15% **Based on EC s assessment (218 Convergence report) Opt-out option Further catching-up needed for real convergence achievement Non-EA NMS Countries adopting EU after 2 GDP/capita (current prices) as percentage of: Data as of % 41% 4% EU28 GDP/capita (current prices) as percentage of: EU28 Data corresponding to prior year of Euro adoption 64% 67% 54% 42% 43% 45% 47% % 24% 21 CZ HU PL HR LV EE LT SK MT SI GR CY Source: European Union, Eurostat, European Commission, Central Bank Non-EA NMS Non euro-area new member states 2

3 : Temporary compliance with nominal convergence criteria Price Stability: Achieved compliance during 3 out 11 years Ex rate stability: full compliance 1 % HICP (annual average rate of ) Reference interval N_EUR monthly average Reference interval Reference interval parameters: MIN: Average of top 3 EU performers in terms of price stability MAX: MIN+1.5pp % pp Aug-18 Reference interval set as ±15% over the average of September 27, September 29, September 211, September 213, September 215, September 217 Jan-7 Jan-8 Jan-9 Jan-1 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan Sustainability of government financial position General government balance: Achieved compliance during 5 out 11 years Convergence in long-term interest rates Achieved compliance during 3 out 11 years % -2% -4% -3% -5% -9% -7% -5% -4% -2% -1% -1% -3% -3% -3% 3% threshold Long-term interest rates (annual average) Reference interval % (% GDP) 9-1% General Government Balance* 8 7 Full compliance in terms of indebtedness 6 threshold 2pp 4.5% 5 4.% General Government Debt* 3% 34% 37% 3 39% % 4% 35% 35% (% GDP) 3 22% Reference interval parameters: 2 2% 12% 12% MIN: Average of top 3 EU performers in terms of price stability 1 MAX: MIN+2pp % Q1' Aug-18 TTM Source: Eurostat, Central Bank, ECB *Data compliant with EU methodology 3

4 Below potential GDP Above potential GDP Real convergence: Fast catching-up generates risks of imbalances Persistent convergence process, still room for catching-up while structural budget deficit widens GDP per capita % of EU28 (based on million PPS) Structural balance of general government % GDP 27=1 1.5 CZ HU PL HR Fastest convergence process amid non-ea NMS 27 vs % -.3% -.2% PL HU CZ HR 44% 63% 53% 7% 4% 49% 6 82% 8 61% 62% GDP per capita % of EU28 (PPS) PL HU -5% -5% -3% -2% -2% -3% Deviation from MTO objective (1%) 1.1 CZ HR -9% -9% Tensions accumulate as current account remains in negative territory given a pro-cyclical fiscal stance Demand-driven GDP growth led to an erosion of current account balance Current account deficit (CAD) % GDP -4.7% -5.1% -5.% % -1.1% -1.2% 7% 4% 3% -2.1% -3.3% (%) Output gap (% potential GDP) Sustainable growth Data for period Grey bubbles mark the years in 96 which had both an anti-cyclical 3 fiscal policy and a stand-by agreement with IMF 17 Do what should not -13.5% -11.5% 1% CAD % GDP (217).2% -3% Not do what needed 99 Annual in budget deficit (% GDP) Sustainable recovery (%) Declining budget deficit Increasing budget deficit Source: Eurostat, AMECO, Central bank 4

5 Growth should be ensured at a sustainable pace Year GDP Y/Y Current account balance % GDP 3-year average Net international investment position % GDP Real effective ex rate 3-year % Export market share 5-year % Nominal unit labor cost index 3-year % House price index 1-year Private sector credit flow consolidated Private sector debt consolidated General government gross debt consolidated % GDP % GDP % GDP Financial sector liabilities non-consolidated 1-year Activity rate 3-year (pp) Long term unemployment rate 3-year (pp) Long term unemployment rate 3-year (pp) # indicators outside MIP thresholds -4% / + -35% ±11% - +12% 14% 133% 16.5% -.2pp.5pp 2pp % % 8.3% 84.2% 3.9% N/A % 11.9% 35.3%.pp -1.6pp 1.7pp % % -5.4% 91.9% 32.9% N/A 12.7% 63.9% 12.4% 14.%.6pp -1.6pp.8pp % -9.9% -6.1% -7.2% 69.4% 28.7% -26.5% % 16.% -.5pp -1.9pp -.2pp % -63.9% 1.5% 53.4% 38.3% -12.7%.9% 74.5% 29.7% 5.% 1.9pp -.8pp 2.8pp % -4.9% % 5.1% 4.2% -16.% % 34.% pp.5pp 6.3pp % -4.9% -67.4% -6.1% 12.4% %.3% 71.9% 36.9% 4.4% 1.7pp.8pp 2.6pp % % % -2.7% -1.4% %..pp.8pp 1.6pp % -2.2% -57.3% 1.4% 2.2% 6.2% -3.1% -2.4% 62.1% 39.1% 1.3% 1.6pp -.1pp.1pp % -1.% % 2.5%.1% 1..2% 59.1% 37.7% 4.1% 1.3pp.pp -.9pp % % 23.3% 7.1% 5.%. 55.4% 37.4% 6.9%.7pp -.2pp -3.1pp % -2.2% % 12.2% 4.% 1.7% % 8.1% 1.6pp -.8pp -5.7pp 2 Source: Eurostat (Macroeconomic imbalance procedure) 5

6 Prior to euro adoption, should focus on reducing inequalities High and increasing inter-regional inequalities due to an uneven distribution of investments GDP/capita % of EU28 (based on PPS): Inequality ratio (Bucharest vs. region): # enterprises / ths inhabitants FDI stock / ths inhabitants (rha) (Data as of 216) EURm All regions have been converging but at different speed. Inequalities have widened between Bucharest ( capital) and the rest of the country x 5.6x Strong polarization of investments and entrepreneurship Bucharest W Center N-W S-E S 3% 5% Distribution 9% of 216 FDI stock S-W 12 11% 139% % 4 51% 5% 44% 41% 4 42% % 3 27% Bucharest W Center N-W S-E S S-W N-E Bucharest W Center N-W S-E S S-W N-E placing 1 st among non-ea NMS and financial intermediation GDP per capita % of EU28 (based on PPS): Capital Rest of the country (average) Regional inequality ratio (ratio between GDP/capita of capital and rest of the country) (Data as of 216) Financial intermediation: Bucharest ( Capital) Rest of the country Cumulated, country-level % Potential country-level financial intermediation, should external financial debt of non-financial corporations be replaced by internal lending % 62% 61% 59% 1. 51% % 42% % 32% 32% 32% 31% % 24% 29% PL HU CZ HR Source: Eurostat, Central bank, National Institute of Statistics Non-EA NMS Non euro-area new member states 6

7 fine-tuning KPIs so that it remains an attractive investment destination Focus on maintaining an elevated labor productivity yield Focus on promoting access to capital Labor productivity yield computed as nominal labor productivity (based on gross value added) relative to annual compensation per employee. 2 22% 27% enjoys the benefits of high labor productivity yield Non EA NMS have higher labor productivity yields vs. most EA countries % 14 Ease of accessing loans Financial constraints perceived within business environment*: Ease of accessing loans** (lha) Industry Services Constructions *Financial constraints results are based on EC s Business survey. Series reflect the number of respondents answering the question What main factors are limiting your production? **Ease of accessing loans is a sub-index of Global Competitiveness Index. The index ranges from 1 (worst) to 7 (best) Financial constraints (%) % PL SK LT HU CZ GR HR LV MT PT EE IT CY ES SI AU NL DE BE UK FR FI SE DK 2.5 Q4'7 Q4'8 Q4'9 Q4'1 Q4'11 Q4'12 Q4'13 Q4'14 Q4'15 Q4'16 Q4'17 across all sectors and continue reducing the institutional gap 272% 225% - Industry - - Constructions - 324% % 27% 174% 161% 139% % World Governance Indicators Voice and accountability EU 27 EU Control of corruption.5 Political stability PL HU CZ HR PL CZ HU HR Labor productivity yield - Agriculture - (217 data) - Services % 191% 169% 161% 242% 215% 25% % 9 149% Rule of law Government effectiveness Indices range from -2.5 (worst) to 2.5 (best) PL HU HR CZ HR HU PL CZ Regulatory Source: Eurostat, European Commission, World Bank, World Economic Forum Non-EA NMS Non euro-area new member states quality 7

8 ...further developing local banking system... aligned its financial and economic cycles amid still young housing market GDP growth private loans Y/Y EA GDP growth EA private loans Y/Y Housing market depth (outstanding housing loans relative to GDP) (217 data) EA Euro Area comprising 19 countries housing market is young as first housing loan was launched in 21 4% 4% 2% % 2% % 41% 3 Non-EA NMS: 1-2% -2% 24% 2% 14% -4% -4% 9% 7.9% Loans outstanding, EOP Loans outstanding, EOP EU28 EA19 CZ PL HR HU but (financial) intermediation remains low and reduced penetration of financial services Financial intermediation (outstanding loans to Non-MFIs excluding government relative to GDP) (217 data) Financial literacy** 8% 79% of adults* paid utility bills in the past year, o/w 11% (vs. 8% EU) by using a financial account 42% of adults* received wages in the past year, o/w 65% (vs. 91% EU) into a financial account 7% DE NL IE FR CZ SK BE 11% 5% HU AU 9 Non-EA NMS: 4 ES 4% GR HR MT 57% 57% 55% 53% LT 3% 35% CY IT 27% 2% PT Financial inclusion (% of adults* having an account with a financial institution) 1% 55% 65% 7% 75% 8% 85% 9% 95% 1% 15% EU28 EA19 HR CZ PL HU Note: Data as of 217 for financial inclusion and 214 for financial literacy *Adults defined as persons of age: +15 Source: European Central Bank, Eurostat, World Bank (FINDEX database), McGraw Hill Financial Global FinLit survey data **Percentage of population that answered correctly at least 3 out of 4 questions regarding risk diversification, inflation, interest, interest compounding. Survey covered over 15k respondents around 14 countries 8

9 ...and improving digitalisation across sectors Practice shows a positive correlation between digital governance & wealth yet, there is still significant catching-up to do GDP/capita growth (avg. annual growth for , PPS-based) DESI index & sub-indices scores: EU28 (217 data) DESI Digital Economy and Society Index ranks 2 nd (in EU) in terms of households connected to ultrafast internet technologies internet users focus most on social networks (82% vs. 65% in EU) 7% LV SK LT EE rank: 28/28 EU Fixed and mobile broadband Digital skills Use of content Business digitalisation & e-commerce e-government & e-health 5% *EGDI assesses how e- PL government strategies are applied for delivery of essential services 4% HR HU based on: scope & quality of online services; development status of telecommunication infrastructure 3% CZ SI and human capital Bullet size is the country s ranking E-government development index (EGDI)* within EU28 based on 218 EGDI Index ranges from (worst) to 1 (best) 2% DESI 218 Index Connectivity Human Capital 51 Use of internet services 18 4 Integration of digital technology Digital public services has been expanding its IT&C sector Gaps can be reduced by implementing 22 Digital Agenda Evolution of GDP (current market prices, b) and its structure 22 objectives were set in 214 within National Strategy on Digital Agenda for Romania Target 22 Current Current EU Contribution of IT&C to GDP formation advanced from 3. to 5.1% Fixed broadband coverage (% households) 1% > 8 97% 188b Subscriptions to fast broadband (% households) 8% > 53% > 33% 134b 11% 19% 12% 3% 5% b 3.7% 15b 12% 1 17% 7% 25% 5% 4.% 16b 5.1% 17b % 21% 15% 25% 5% 4.9% 12% 2% 9% 17% 24% 4% 5.1% Net taxes Other services Real Estate IT&C Retail Sales Constructions Industry & Energy Agriculture Subscriptions to ultrafast broadband (% households) Use of internet for online shopping (% internet users) SMEs selling online (% SMEs) Regular users of internet (% individuals) Individuals that never used internet egovernment Users (interaction with public authorities % individuals) egovernment Users submitting online forms (% individuals) Source: United Nations (E-government Survey 218); Eurostat, World Bank, European Commission (DESI 218), National Institute of Statistics, National Strategy on Digital Agenda for Romania (214) 9 45% 3% 2% 3% 35% 2% > 44% > 23% 61% > 27% > By implementing the fields of actions defined in 22 Digital Agenda (Broadband & infrastructure; ecommerce & ITC innovation; egovernance, Cyber Security, Cloud, Big Data & Social media; eeducation and einclusion), GDP could grow as much as 13%, the number of jobs could advance 11% and costs could be reduced by 12% (Gov estimates) > > > > 9% 4% 15% 6 17% 81% 13% 49% 3%

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