The economic catching-up process in the new EU member states

Transcription

1 The economic catching-up process in the new EU member states What are the drivers of the convergence process? Think Tank of Deutsche Bank Group Marion Mühlberger

2 Agenda 1 How do we measure real convergence? 2 Drivers of real convergence 3 EU membership and real convergence Marion Mühlberger March 13, 2008 page 2

3 1 GDP per capita as a yardstick for real convergence Large disparity in wealth Per-capita income in PPP (Euroland=100) Differing price levels in individual countries Measurement using purchasing power parities ensures comparability Newest EU member states at the very bottom of the rankings Czech Rep. EU Sources: IMF, DB Research Marion Mühlberger March 13, 2008 page 3

4 1 The growth locomotive of the EU is in the east Impressive growth Real GDP growth, yoy Dynamic economic growth driven by: Private consumption Investment activity Booming exports Czech Rep. EU-15 is now at the bottom of the European growth league (the reason: very tight fiscal policy is holding back private consumption and investment) Source: DB Reserach Marion Mühlberger March 13, 2008 page 4

5 1 Real convergence: A question of decades not just years Income convergence progressing apace Per-capita income in PPP (Euroland=100) Czech Rep. Sources: IMF, DB Research Neoclassical theory states that under certain circumstances real incomes converge The only country to be on a par with the EU-12 in 2020 will be the Czech Republic Marion Mühlberger March 13, 2008 page 5

6 1 Real convergence: Significant regional differences Regional comparison reveals differences Regional GDP per capita in PPP, % of EU-27 average, Germany Czech Rep. 0 Hamburg Brandenburg - North-East Prague Sources: Eurostat, DB Research Strední Morava Közép- Magyarország Észak-Alföld Mazowieckie Lubelskie Bucharest - Ilfov South-West Oltenia Yugozapaden Severozapaden Does clustering within the countries contradict neoclassical theory? Gap between the regions has widened slightly over the last five years Richest (capital-city) regions are twice as prosperous as the poorest regions on average Marion Mühlberger March 13, 2008 page 6

7 Agenda 1 How do we measure real convergence? 2 Drivers of real convergence 3 EU membership and real convergence Marion Mühlberger March 13, 2008 page 7

8 2 Interplay of all factors is decisive Human capital Depth of the financial sector Labour input Economic convergence Real capital Openness in external trade Marion Mühlberger March 13, 2008 page 8

9 2 1st driver of real convergence: Trade openness Increasing trade openness Average exports and imports as % of GDP Czech Rep. Germany Sources: Eurostat, DB Research Countries are progressing up the rankings in the European division of labour Waning importance of trade in primary goods Industrial goods trade has become more important (especially automobile and autoparts industry, chemical products) They are no longer merely extended production lines but are increasingly integrated into high-tech production processes Growing share of research-intensive goods Marion Mühlberger March 13, 2008 page 9

10 2 2nd driver of real convergence: Investment and investing heavily Investment as % of GDP EU-27 Czech Rep. Sources: Eurostat, DB Research Germany Large productivity gap Labour productivity per hour (EU-15=100) Czech Rep. Sources: Eurostat, DB Research Marion Mühlberger March 13, 2008 page 10

11 2 2nd driver of real convergence: Investment Innovation on the increase European Innovation Scoreboard 2003 vs EU-27 Czech Rep. Sources: European Commission, DB Research Knowledge stock growing too slowly Research and development expenditure as % of GDP EU-15 Czech Rep. Sources: Eurostat, DB Research Marion Mühlberger March 13, 2008 page 11

12 2 3rd driver of real convergence: Human capital High level of education Percentage of population with secondary-school education EU-15 Czech Rep. Education is a major growth driver: Education boosts personal income Demand declining for low-skilled labour Public education expenditure too low Lifelong learning becoming increasingly important Sources: Eurostat, DB Research Marion Mühlberger March 13, 2008 page 12

13 2 4th driver of real convergence: Labour input Convergence in unemployment rates Unemployed as % of workforce EU-15 Czech Rep. Sources: Eurostat, DB Research Activity rates below EU average Employed persons as % of workforce EU-15 Czech Rep. Sources: Eurostat, DB Research Marion Mühlberger March 13, 2008 page 13

14 2 5th driver of real convergence: Deepening of the financial sector Financial markets lack depth % of GDP, 2007 Czech Rep. Germany Developed and efficient financial systems improve capital allocation and thus promote growth Developed financial systems enable trade, management and diversification of risks They facilitate the mobilisation of savings Lending to the private sector Stock market capitalisation Outstanding bonds Sources: BIS, National central banks, DB Research Marion Mühlberger March 13, 2008 page 14

15 2 5th driver of real convergence: Foreign bank investments speed up deepening GDP per capita rises as financial sector deepens Per-capita GDP in purchasing power parity (x-axis), bank assets as % of GDP (y-axis), AL SEE-7 BA BG RO RS MK HR Sources: National central banks, IFS, DB Research H PL SK CEE-5 CZ Banks predominantly foreign owned % of banking sector assets, SI EU-12 y = x R2 = Foreign banks active in Central and Eastern Europe Promoted recapitalisation of banks Led to strengthening of risk management Led to consolidation of bank sector Speeding up deepening of the financial sector Czech Rep. Sources: Raiffeisen, DB Research Marion Mühlberger March 13, 2008 page 15

16 Agenda 1 How do we measure real convergence? 2 Drivers of real convergence 3 EU membership and real convergence Marion Mühlberger March 13, 2008 page 16

17 3 EU membership intensifies real convergence Human capital Depth of the financial sector Involvement of Western European banks Real capital Exchange programmes Cooperation between universities Economic convergence Labour input Migration Legal certainty leads to rising direct investment Openness of external trade Free exchange of goods and services Marion Mühlberger March 13, 2008 page 17

18 3 Ideal policy mix prompts more rapid convergence Accelerated convergence scenario Per-capita income in PPP (Euroland=100) Czech Rep. Sources: IMF, DB Research Marion Mühlberger March 13, 2008 page 18

19 More on Emerging Markets: Marion Mühlberger March 13, 2008 page 19

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