The year-on-year decline in the EU10 region moderated from -4.6 percent in the second quarter of 2009 to -2.1 percent in the fourth quarter of 2009, in line with the improvement from -5.7 percent to -2.0 percent over the same period in the EU15 region. High-frequency indicators suggest that economic activity in the EU10 region continued its gradual recovery in early 2010. Trade volumes in Europe are stabilizing, as demand for durable goods and capital equipment is rising. Overall, a rapid global recovery, the return of confidence to financial markets, low interest rates, and better use of EU funds could support a quick recovery in the EU10 region. But in 2010, it will be a modest recovery.
The pace of the recovery will also differ across the region, reflecting different initial conditions, external shocks, and policy responses. According to government projections, Poland, Slovakia, Lithuania, Romania, and the Czech Republic are leading the recovery in 2010. At the same time, Lithuania, Estonia, and Latvia are expected to see the largest improvements in the growth rate from 2009 to 2010, ranging from 13 to 17 percentage points. Only in 2011 will all EU10 countries experience growth.
“While the recovery in the global economy is under way, the outlook for the EU10 region remains uncertain. Unemployment is still rising and is expected to decline only in 2011,” said Kaspar Richter, Senior Economist in the World Bank’s Europe and Central Asia Region and lead author of the report. “In view of the weak recovery, companies are likely to postpone hiring of new workers until growth expectations are firmer, especially since many businesses reduced the average per worker work hours during the crisis. In addition, some EU10 countries, including Bulgaria, Czech Republic, Romania, and Slovakia, have begun consolidating their governments because of fiscal pressures and a desire to make public administration more efficient.”
Unemployment rates in the EU10 rose from 6.5 percent in June 2008 to 9.5 percent in January 2010, increasing from 2.9 million to 4.6 million persons. Governments in all EU10 countries, with the exception of Romania, project higher unemployment in 2010 than in 2009.
According to the EU10 Regular Economic Report, men and youth have been hit the hardest. Job market prospects for workers with basic education and little work experience are likely to stay weak for several years. Unemployment among 15-24 year old job-seekers rose by 8 percentage points between June 2008 and January 2010, compared with an overall increase of 3 percentage points. Because the economic crisis hit construction and manufacturing hardest, job losses have been concentrated among men. In January 2010, unemployment among men exceeded that of women in all EU10 countries, with the largest differences in Estonia, Lithuania and Latvia.
But there are differences among countries in the region: from June 2008 to January 2010, unemployment rates increased by around 16 percentage points in Latvia, around 10 percent in Estonia and Lithuania; and less than 4 percentage points in Slovakia, the Czech Republic, Hungary, Slovenia, Bulgaria, Poland, and Romania.
The EU10 countries need to secure their recovery through a fiscal consolidation that makes governments slimmer and smarter, and a better investment climate that raises productivity and creates jobs. Governments will have to balance support for a broad-based economic recovery with exit strategies from anti-crisis stimulus packages.
The EU’s new “Europe 2020” strategy for smart, sustainable, and inclusive growth calls for efforts to bolster potential growth and reorient the economies towards exports. This will require big changes in the policies affecting public finance, education, innovation, and the business climate. Done right, these reforms will prevent a cyclical rise in the number of jobless from becoming structurally unemployed.
“The crisis has re-emphasized the importance of supporting growth through structural change, as envisioned in the EU’s new Europe 2020 strategy for smart, sustainable, and inclusive growth,” said Thomas Laursen, Country World Bank Country Manager for Poland and the Baltic Countries. “Boosting potential growth would limit the fiscal deterioration resulting from the crisis, and would help to tackle the tough task of dealing with globalization, energy deficiency, climate change, and population aging. The reform agenda ranges from increasing labor force participation and strengthening higher education and innovation, to cutting red tape and reducing costs for doing business.”
