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Bank of Greece – University of Oxford (SEESOX) Conference Challenges and Prospects of South East European Economies in t

Bank of Greece – University of Oxford (SEESOX) Conference Challenges and Prospects of South East European Economies in the wake of the financial crisis Bank of Greece Friday, 16 October 2009. Resilience of SEEs to the crisis Paul Mylonas

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Bank of Greece – University of Oxford (SEESOX) Conference Challenges and Prospects of South East European Economies in t

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  1. Bank of Greece – University of Oxford (SEESOX) Conference Challenges and Prospects of South East European Economies in the wake of the financial crisis Bank of Greece Friday, 16 October 2009 Resilience of SEEs to the crisis Paul Mylonas Chief Economist, Chief of Strategy, National Bank of Greece Group National Bank of Greece Group – Strategy & Economic Research

  2. What people saw and what they expected What happened and current prospects Why a better-than-expected outcome NBG - Strategy & Economic Research Resilience of SEEs to the crisis 1

  3. What people saw and what they expected NBG - Strategy & Economic Research Resilience of SEEs to the crisis 2

  4. Booming activity, albeit from a low base … but above potential? NBG - Strategy & Economic Research Resilience of SEEs to the crisis 3

  5. Evidence of excess demand reinforced by the build-up of a large external imbalance NBG - Strategy & Economic Research Resilience of SEEs to the crisis 4

  6. Additional indicators of imbalances – real exchange rate appreciation and large credit impulse NBG - Strategy & Economic Research Resilience of SEEs to the crisis 5

  7. Banking sector imbalances: large share of F/X denominated loans and dependence on foreign funding NBG - Strategy & Economic Research Resilience of SEEs to the crisis 6

  8. Very large real wage increases (again from a low base), but were they hampering competitiveness? Also a house price bubble had emerged NBG - Strategy & Economic Research Resilience of SEEs to the crisis 7

  9. With the global economy in turmoil, markets and analysts envisaged a grim end to the boom years NBG - Strategy & Economic Research Resilience of SEEs to the crisis 8

  10. What happened and current prospects NBG - Strategy & Economic Research Resilience of SEEs to the crisis 9

  11. Much larger-than-initially-expected drop in output, similar to more advanced economies, and with a higher “β”… NBG - Strategy & Economic Research Resilience of SEEs to the crisis 10

  12. … due to openness and manufacturing bias NBG - Strategy & Economic Research Resilience of SEEs to the crisis 11

  13. Further evidence of the important role of the inventory correction in the nascent recovery in exports NBG - Strategy & Economic Research Resilience of SEEs to the crisis 12

  14. Contraction in activity reflects a sharp slowdown in exports and credit expansion NBG - Strategy & Economic Research Resilience of SEEs to the crisis 13

  15. External imbalances correcting rapidly, despite drop in exports, reflecting … NBG - Strategy & Economic Research Resilience of SEEs to the crisis 14

  16. … a cut-off of oxygen to the economy from large capital inflows of the past -- yet better than expected NBG - Strategy & Economic Research Resilience of SEEs to the crisis 15

  17. As a result, FX reserves have not suffered greatly, and appear adequate in relation to the external financing gaps NBG - Strategy & Economic Research Resilience of SEEs to the crisis 16

  18. Overall, leading and coincident indicators suggest that the worst is over, and activity will recover by Q4:2009 NBG - Strategy & Economic Research Resilience of SEEs to the crisis 17

  19. Markets clearly have changed their mind regarding the outlook for SEE, as well NBG - Strategy & Economic Research Resilience of SEEs to the crisis 18

  20. Why a better-than-expected outcome NBG - Strategy & Economic Research Resilience of SEEs to the crisis 19

  21. EU membership (or on path towards) and/or IFI umbrella, combined with solid Governments (in most cases) provided much needed support… NBG - Strategy & Economic Research Resilience of SEEs to the crisis 20

  22. … allowing monetary policy to be countercyclical (in contrast to other EM crises) NBG - Strategy & Economic Research Resilience of SEEs to the crisis 21

  23. FP is also countercyclical, with automatic stabilizers allowed free reign, permitted by good initial debt conditions… NBG - Strategy & Economic Research Resilience of SEEs to the crisis 22

  24. A traditional Achilles’ heel of EM crises -- the health of the banking system -- was in good shape NBG - Strategy & Economic Research Resilience of SEEs to the crisis 23

  25. Several years of adjustment effort has made these economies very competitive NBG - Strategy & Economic Research Resilience of SEEs to the crisis 24

  26. Thank you NBG - Strategy & Economic Research Resilience of SEEs to the crisis 25

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