ECA Economic Update, March 2021 - Regional Outlook

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00:00 Good morning.

00:01 Um,

00:01 I'm joined today with uh Asleg Damirguch Kon.

00:05 Uh,

00:05 she's the chief economist for Europe and Central Asia region for the World Bank.

00:10 The World Bank just released its spring economic

00:12 update for Europe and Central Asia region,

00:15 and,

00:15 uh,

00:16 this report comes after one year of a pandemic,

00:18 COVID-19,

00:19 that has devastated the world economy.

00:22 The region has not been immune to this global downturn,

00:26 and um the report looks at what has happened to our region in the last year.

00:30 Asti,

00:31 please tell us,

00:32 um,

00:32 how are we doing

00:34 after a year of lockdown and pandemic.

00:36 Thank you,

00:37 Sona.

00:38 Yes,

00:38 indeed,

00:39 the pandemic really seriously affected the region.

00:43 In 2020,

00:45 we contracted about 2%.

00:49 This was actually better than expected in January

00:52 because the largest two countries in the region,

00:56 Turkey and Russia,

00:57 did better.

00:59 Turkey grew and Russia was quite resilient,

01:02 and this was due to strong Export growth and increasing commodity prices,

01:07 all boosted by the recovery in Europe and China,

01:10 and also fiscal monetary support contributed to this.

01:14 Now economies that were hardest hit were those

01:18 that were heavily dependent on services and tourism,

01:23 since there's still sustained weakness in these industries and

01:27 due to mobility restrictions and social distancing measures.

01:34 Ashley,

01:35 as we look forward to the rest of the year,

01:37 what are the projections that you see?

01:39 Uh,

01:39 what are some of the risks that you see?

01:41 Can you tell us?

01:43 Yes,

01:43 well,

01:43 in 2021,

01:45 uh,

01:45 we are expecting a growth of 3.6%.

01:50 Hopefully the pandemic will fade and there will be

01:53 recovery and trade and investment that's going to continue.

01:57 Now of course there are risks,

01:59 and there are quite a number of them.

02:01 First,

02:01 this is a race between the virus and the vaccines.

02:04 If the pandemic cannot be controlled and

02:07 restrictions have to be introduced or continued,

02:10 of course

02:11 this would drag down growth.

02:14 Second,

02:15 there is always the risk of not being

02:17 able to continue fiscal support because of sustainability,

02:20 and sustainability issues.

02:22 Third,

02:24 COVID crisis can easily turn into a financial

02:28 crisis if all the support to corporates,

02:31 at least some of them,

02:32 become

02:33 non-performing loans.

02:35 This could have impact on the

02:37 domestic financial systems,

02:39 leading to financial fragility.

02:42 Now there's always the risk of geopolitical tensions

02:46 and policy uncertainty happening again in our region.

02:50 And these are the medium risks,

02:52 but they're also longer term issues.

02:55 We still don't quite understand

02:58 uh the extent to which there's scarring with COVID,

03:02 you know,

03:02 to what extent there will be an impact on.

03:06 Consumer and investor confidence,

03:09 uh,

03:09 you know,

03:10 how is COVID going to impact investments in human capital,

03:14 you know,

03:15 women's empowerment,

03:16 labor force participation.

03:18 So these are hard to assess,

03:20 but they can be serious risks as well.

03:24 Thank you,

03:24 Ashley.

03:25 Um,

03:26 what I want to know and what our viewers want to know is,

03:29 um,

03:29 how does it look beyond 2021 as we are already almost half,

03:33 uh,

03:33 done with the year.

03:34 Please tell us.

03:36 Yes,

03:37 well,

03:37 of course it's more difficult to tell as we look forward,

03:40 but if these risks do not materialize,

03:44 we expect the region to continue its growth in 2022 and grow another 3.8%.

03:52 But despite this rebound in growth,

03:56 recovery will really take time.

03:58 For example,

03:59 even if EA economies grow as expected in 2021 and 2022,

04:06 GDP per capita of the region

04:08 will still remain 3% below its pre-pandemic trend in 2022.

04:14 So long-term sustainable recovery will require strong policy action.

04:22 Well,

04:23 talking about policy actions in terms of long term sustainable recovery,

04:28 what is the World Bank recommending governments?

04:31 What kind of actions does the World Bank recommend?

04:34 Yeah,

04:35 I'd like to mention 4 areas,

04:38 4 priority areas for our region.

04:41 Uh,

04:41 first,

04:42 of course,

04:42 boosting your human capital and reversing the damage COVID-19 has done.

04:49 As you know,

04:50 the pandemic is still leading to significant human loss,

04:55 and even those that are recovering may have long-term health implications.

05:01 The pandemic also has disrupted the education of

05:06 children in the region and the world.

05:09 Recovery from the pandemic will require

05:12 strong investments in health and education,

05:15 and this is a topic we've covered in our last update if you will remember.

05:20 Now,

05:20 second priority area is strengthening institutions.

05:25 Weak institutions and weak governance has been an obstacle to

05:30 sustained growth in the region for quite a while,

05:34 since the pandemic is necessitating

05:36 even more

05:38 important role for the government as they try

05:41 to deal with the recovery and undertake reforms.

05:45 This is making it even more important.

05:49 Strengthen

05:51 institutions,

05:52 control corruption,

05:53 improve governance to achieve sustainable recovery,

05:56 and this is what we're covering in our

06:00 update as a special topic this year.

06:02 And the third area

06:05 that is a priority is actually enabling markets and fostering competition.

06:11 And governance problems often manifest themselves as greater

06:15 concentration which limits access and limits inclusion.

06:20 Many countries in the region are still trans

06:23 transitioning to market-based economies.

06:26 They are undergoing reforms,

06:28 but more needs to be done.

06:29 Uh,

06:30 particularly COVID spending,

06:32 uh,

06:32 could be made to promote a more equitable and inclusive recovery,

06:37 and competition policy is key in this,

06:39 and of course,

06:40 uh,

06:40 for,

06:41 uh,

06:41 private sector development,

06:43 innovation,

06:44 productivity.

06:45 And last but not least,

06:47 uh,

06:47 green transition is very important.

06:50 building resilience

06:52 to the risks posed by climate change is

06:55 essential in our region because there are so many

06:58 countries that are significant agricultural exporters

07:04 and there are numerous coastal populations

07:07 investing in renewable energy.

07:10 Increased energy security while reducing reliance on energy imports.

07:14 So

07:15 COVID recovery packages will

07:19 need to sort of incorporate

07:22 green objectives so that there is increased resilience

07:26 to future shocks as well as risk reduction.

07:31 Thank you,

07:31 Ashley.

07:32 Thank you.

07:32 This is very important,

07:33 very interesting,

07:34 and we are all hopeful that in the vaccine versus virus race,

07:38 of course,

07:38 the vaccine wins and we are back to our normal lives.

07:41 Thank you very much for joining us today.

07:43 Um,

07:44 thank you for the viewers for listening to us.

07:46 Thank you,

07:47 Sona.

07:48 Thank you.

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transcript

Good morning. Um, I'm joined today with uh Asleg Damirguch Kon. Uh, she's the chief economist for Europe and Central Asia region for the World Bank. The World Bank just released its spring economic update for Europe and Central Asia region, and, uh, this report comes after one year of a pandemic, COVID-19, that has devastated the world economy. The region has not been immune to this global downturn, and um the report looks at what has happened to our region in the last year. Asti, please tell us, um, how are we doing after a year of lockdown and pandemic. Thank you, Sona. Yes, indeed, the pandemic really seriously affected the region. In 2020, we contracted about 2%. This was actually better than expected in January because the largest two countries in the region, Turkey and Russia, did better. Turkey grew and Russia was quite resilient, and this was due to strong Export growth and increasing commodity prices, all boosted by the recovery in Europe and China, and also fiscal monetary support contributed to this. Now economies that were hardest hit were those that were heavily dependent on services and tourism, since there's still sustained weakness in these industries and due to mobility restrictions and social distancing measures. Ashley, as we look forward to the rest of the year, what are the projections that you see? Uh, what are some of the risks that you see? Can you tell us? Yes, well, in 2021, uh, we are expecting a growth of 3.6%. Hopefully the pandemic will fade and there will be recovery and trade and investment that's going to continue. Now of course there are risks, and there are quite a number of them. First, this is a race between the virus and the vaccines. If the pandemic cannot be controlled and restrictions have to be introduced or continued, of course this would drag down growth. Second, there is always the risk of not being able to continue fiscal support because of sustainability, and sustainability issues. Third, COVID crisis can easily turn into a financial crisis if all the support to corporates, at least some of them, become non-performing loans. This could have impact on the domestic financial systems, leading to financial fragility. Now there's always the risk of geopolitical tensions and policy uncertainty happening again in our region. And these are the medium risks, but they're also longer term issues. We still don't quite understand uh the extent to which there's scarring with COVID, you know, to what extent there will be an impact on. Consumer and investor confidence, uh, you know, how is COVID going to impact investments in human capital, you know, women's empowerment, labor force participation. So these are hard to assess, but they can be serious risks as well. Thank you, Ashley. Um, what I want to know and what our viewers want to know is, um, how does it look beyond 2021 as we are already almost half, uh, done with the year. Please tell us. Yes, well, of course it's more difficult to tell as we look forward, but if these risks do not materialize, we expect the region to continue its growth in 2022 and grow another 3.8%. But despite this rebound in growth, recovery will really take time. For example, even if EA economies grow as expected in 2021 and 2022, GDP per capita of the region will still remain 3% below its pre-pandemic trend in 2022. So long-term sustainable recovery will require strong policy action. Well, talking about policy actions in terms of long term sustainable recovery, what is the World Bank recommending governments? What kind of actions does the World Bank recommend? Yeah, I'd like to mention 4 areas, 4 priority areas for our region. Uh, first, of course, boosting your human capital and reversing the damage COVID-19 has done. As you know, the pandemic is still leading to significant human loss, and even those that are recovering may have long-term health implications. The pandemic also has disrupted the education of children in the region and the world. Recovery from the pandemic will require strong investments in health and education, and this is a topic we've covered in our last update if you will remember. Now, second priority area is strengthening institutions. Weak institutions and weak governance has been an obstacle to sustained growth in the region for quite a while, since the pandemic is necessitating even more important role for the government as they try to deal with the recovery and undertake reforms. This is making it even more important. Strengthen institutions, control corruption, improve governance to achieve sustainable recovery, and this is what we're covering in our update as a special topic this year. And the third area that is a priority is actually enabling markets and fostering competition. And governance problems often manifest themselves as greater concentration which limits access and limits inclusion. Many countries in the region are still trans transitioning to market-based economies. They are undergoing reforms, but more needs to be done. Uh, particularly COVID spending, uh, could be made to promote a more equitable and inclusive recovery, and competition policy is key in this, and of course, uh, for, uh, private sector development, innovation, productivity. And last but not least, uh, green transition is very important. building resilience to the risks posed by climate change is essential in our region because there are so many countries that are significant agricultural exporters and there are numerous coastal populations investing in renewable energy. Increased energy security while reducing reliance on energy imports. So COVID recovery packages will need to sort of incorporate green objectives so that there is increased resilience to future shocks as well as risk reduction. Thank you, Ashley. Thank you. This is very important, very interesting, and we are all hopeful that in the vaccine versus virus race, of course, the vaccine wins and we are back to our normal lives. Thank you very much for joining us today. Um, thank you for the viewers for listening to us. Thank you, Sona. Thank you.

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