PREM Products

1

Eastern Europe and the former Soviet
Union An Economic Overview

Asad Alam October 23, 2008
2
Remarkable period of growth after deep decline in
1990s
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The investment climate improved

• Doing Business 2008
• Some ECA countries on a par with some Western
  European economies
• Four ECA countries among top 10 reformers
• Estonia, Georgia, and Latvia among the
  25economies with best business conditions
  worldwide

But more work is needed, particularly the
Western Balkans and in CIS countries
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Poverty fell dramatically yet about 38 percent
are poor or vulnerable
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Broad progress towards achieving MDGs (status in
2008)
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Productivity growth has been key to improved
economic performance

• Productivity boosted growth
• Dynamic firms at the core of the productivity
  surge
• Domestic policies and global integration boosted
  productivity
• But more must be done to catch up with EU-15
  incomes
• Policy agenda differs across countries
• EU-10 countries and Turkey must focus on
  innovation
• CIS and SEE countries must complete transition
  and remove barriers to firm entry exit

7
Productivity boosted growth, more than capital or
labor
80 of growth explained by productivity
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Dynamic firms at the core of the productivity
surge
Productivity Growth (1) existing firms
improving productivity (2) entry of new firms
and exit of old ones (3) workers moving from
low to high productivity jobs
9
Domestic policies and global integration boosted
productivity

• Five reform areas are critical
• GOVERNANCE MACRO STABILITY reducing red tape
  prudent economic policies
• COMPETITION AND MARKET ACCESS promoting
  competition and global integration
• LABOR TECHNOLOGY training workers investing
  in ICT and RD
• INFRASTRUCTURE investing in telecom, transport
  and energy
• FINANCE improving access to finance

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Challenges ahead more must be done to catch up
with EU-15 incomes
Even in the best performers (EU-10) Income per
capita is less than half the EU-15 average
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Short-term risks have increased

• Global slowdown from the credit crunch
• Flight to safety of private capital
• Some sectors will likely be hit harder (e.g.
  construction)
• Higher energy prices will reduce profitability
• Fiscal pressures will increase

12
The policy agenda differs across countries.but,
first, all must manage the short-term economic
shocks and risks

• CIS-Low
• CIS-Mid
• SEE
• Turkey
• EU-10

COMPLETE THE TRANSITION TO MARKET
ECONOMY REMOVING BARRIERS TO FIRM ENTRY AND EXIT
PROMOTE INNOVATION TO COMPETE GLOBALLY
THANK YOU