EU11 REGULAR ECONOMIC REPORT FY14 (P147712) Concept Note1 1. INTRODUCTION The Regular Economic Report (RER) covers economic developments, prospects, and looks at relevant structural issues across the 11 ‘new’ European Union (EU) member states—Bulgaria, Croatia, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, the Slovak Republic, and Slovenia. Croatia was incorporated in June 2012, and formally joined the EU in July 2013. Going forward, the RER will continue to cover these 11 countries and refer to this group as EU11. The objective of the EU11 RER is to provide an assessment of recent and projected macroeconomic and structural developments and contribute to policy dialogue in the region. The Report is published twice a year and provides a regular flow of macroeconomic analysis and forecasts on the EU11 countries. In addition to discussing the latest economic and labor market developments, each report also presents special topic analytical notes on issues of current policy relevance for the EU11. The Report is widely disseminated and is a core part of a suite of ECA economic reports (e.g. the SEE6 and Russia RERs). These are increasingly seen as trademarks of the World Bank’s analytical presence in the region. They are disseminated through media launches, print and online, and to special audiences in seminars. The dissemination strategies are being refined with each version. Annex 1 describes the outcomes and demonstrates the importance of the RERs, as illustrated by the high number of ‘hits’ and downloads from the World Bank Group external site and news stories. It confirms the potential role of the RERs as a platform for policy discussions on economic and structural developments in the EU11. This concept note presents the proposed framework for the 28th and 29th RERs, to be launched between December 2013 and June 2014. The next section describes the particular features of the EU11 RER, collaboration with internal and external partners, and dissemination strategy. Section 3 presents the team and the budget for the task. 1 The Concept Note was prepared by Theo Thomas, Ewa Korczyc and Matija Laco under the guidance of Satu Kahkonen (Sector Manager). 1 2. FEATURES OF THE REPORT The EU11 RER fills a market niche as a knowledge product with its geographic focus, unique country coverage, and timely coverage of economic developments and topical structural issues. It fosters collaboration internally among the team of country economists and across Bank teams; and externally with governments, other international organizations, research institutes, and policy analysts. The EU11 RER strives to be a recognized product for audiences interested in the developments in Central and Eastern Europe as well as for broader knowledge learning. Box 1: Lessons Learned from the RERs Building on what worked well in the past and the 27 and 28 lessons learnt (see Box 1), the team intends to strengthen the EU11 RER in three ways: (i) by Based on feedback the team drew four main deepening the cross-country analysis not only in the lessons: macroeconomic report, but also in the special topic 1. The RER provided useful analysis and there is evidence of broad and strong analytical piece; (ii) looking for ways to better utilize demand in the focus countries (see the report as a collaboration tool within PREM, Annex 2). The Team will continue to across sectors, and with highly specialized inputs strengthen the performance monitoring from external partners; and (iii) by delivering well- and evaluation of each Report to targeted dissemination events. enhance relevance and impact. 2. The benchmarking and forecasts of the particular EU11 countries with the rest The Report will continue to comprise two distinct of the EU’s performance and in parts: first, a report on the macroeconomic trends comparison to other emerging and outlook; and second, an analytical ‘Special Topic’ economies was well received by the dealing with an in-depth investigation of a topical main target audience and journalists. The team will retain this benchmarking. issue of policy relevance for EU11 (approx. 10 3. EXT suggested that there is still room pages). In addition, the RERs will draw on relevant to expand the dissemination of the Bank analytical work to produce short ‘Spotlights’ Reports. The Team will explore options (approx. 3 pages)—such as the piece on “Inclusive for enhancing the dissemination efforts Growth” in #27—and topical Boxes, e.g. to present with EXT, seeking to use a range of media and formats (such as eBook, the Doing Business survey results. blogs etc.) to complement the current launch events and formats. The EU11 Macroeconomic Section 4. Feedback from staff, other IFIs and journalists expressed a preference for a The report on the EU11 macroeconomy consists of concise report that is presented around a topical theme that connects the EU11, two parts: (i) an assessment of recent trends and and links with the Special Topic. This developments on the macroeconomic front of the storyline could help to add value to the EU11, covering the real sector (including Report. employment), external sector, monetary policy and the financial sector, fiscal policy; and (ii) the Bank’s near term economic outlook for the EU11 countries. The macro report also presents short updates on policy changes related to structural, the business environment, and/or poverty issues. The EU11 RER is a unique knowledge resource for governments, businesses and decision makers and within the Bank and for other stakeholders interested in the recent economic developments and near term economic outlook of the eleven European countries. 2  Geographic focus: The EU11 RER is the only regional economic report exclusively tailored to the EU new member states in Central and Eastern Europe. The EU11 countries share the same geography; many share similar transition histories; and all have EU convergence perspectives. The unique regional perspective of the EU11 RER has resonated well with policy makers, economists and investors. Regular regional reports of partner organizations such as the IMF, EBRD or EC cover either larger regional groupings, focus on individual countries or come less frequently. The EU11 RER therefore fills a niche with its particular geographical focus.  Country coverage: Four years after the crisis hit in 2008, concerns about the region’s recovery are still acute and the demand for objective economic assessments remains high. EU11 governments want to know about their country’s performance relative to the rest of the EU, investors are eager to find out about emerging vulnerabilities, and economists want to learn about policy reforms in other countries. At the same time, a number of new EU member states have graduated from the Bank as their living standards have converged with those of the EU. As a result, the Bank’s presence in the region has been scaled back over the last decade, leaving country offices only in Bulgaria, Croatia, Poland, and Romania. This makes it difficult for the Bank to provide in-depth macroeconomic assessments on a country-by-country basis. The EU11 RER has attempted to fill this gap. Drawing on high quality data provided from Eurostat, the World Bank, IMF, country institutions or other sources, the report provides a detailed assessment of developments, prospects and reforms across both graduated and non- graduated EU11 countries.  Benchmarking: The report allows benchmarking of each country’s position relative not only to each other, but also to the averages of the EU11 and the rest of the EU countries. Given the uniqueness of the EU11 construct, the team will explore meaningful comparisons such as the ‘rest of the EU’, or the conventions used in the Golden Growth report (Gill and Raiser, eds., 2012) such as EU-South, EU-North, EU- Continental, etc.  Timeliness: The EU11 RER provides timely economic analysis based on the latest information on country and regional indicators. The Report draws on the semester reports from the EC as well as consensus forecasts and the country knowledge of the local teams. While this can sometimes make it difficult to coincide with other Bank events, such as the Bank-Fund Spring and Annual meetings, the freshness of the data enhances the relevance of the Reports in the target markets. 3 The EU11 Special Topics and Spotlights The Special Topic/Focus Notes and Spotlights are an integral part of the RER. The notes present a closer analytical look at economic and structural issues of relevance to the EU11 region and both draw from and should contribute toward the Bank’s work in the ECA region.  Topic selection and process: The selection of the focus notes and Spotlights is based on information and feedback from the EU11 governments and Bank’s management on relevant policy areas. They are cross-country analytical pieces. Thus far, the special topic notes have either showcased findings from Bank’s reports or presented independent analysis done by country economists and sectoral specialist in collaboration with external experts. However, the RER Focus Notes need to add value, and resonate, with client countries and should not simply repeat findings from other Bank reports (as the latter approach has not been considered of interest to clients in the past).  Editions 28 and 29 will each feature one focus note presenting World Bank analysis on a topic of importance on? the EU11s economic and structural development. The focus notes will be based on analysis pieces being done well in advance to be ready for review and publication in the FY14 RERs. Other sectors will continue to be offered an opportunity to contribute to focus notes while the RER will present scope for presenting findings of original policy research conducted or managed by the Bank team.  The RER team will also seek potential synergies with the other RERs (e.g. SEE) and ECA regional reports. Where there are strong commonalities and potential economies of scale? Where appropriate the team will coordinate research with the SEE RER.  The special topics should be used strategically to not only fill existing gaps on current policy issues, but also to inform the policy dialogue with the client governments, senior management in the Bank, and the public in general. The ‘in-house’ preparation will ensure the engagement of the country economists on a particular issue of economic policy importance, and make them effective advocates for new ideas.  Identification of special topics should remain flexible during the fiscal year to ensure that the team can respond to issues of current policy relevance. The time frame of developing an analytical paper to be published as a focus note in the RER is between 3-9 months. The team will present short outline/descriptions of candidate topics for the ECCU5 Country Director’s consideration with each issue of the RER.  Scope: The potential scope of special topics f interest for the EU11 countries is large. The team aims to build on and deepen on-going regional or country-level work, and explore synergies for a cost-effective delivery of policy analysis on topical issues. The potential scope of policy issues of interest for the EU countries is large. The team aims to build on and deepen on-going regional or country-level work, and explore synergies for a cost-effective delivery of policy analysis on topical issues. The CMU DMT and RER team has identified the Special Topic for the December 2013 issue as “Poverty and Shared Prosperity in the EU11” (outlined below): 4 December 2013 Special Topic: Poverty and Shared Prosperity in the EU112 1. Introduction (1/2 page): This section will briefly explain the twin WBG goals of reducing extreme poverty and promoting shared prosperity. It will cover the broad concepts and the motivations behind the goals, and also describe the indicators to be used and the target for reducing extreme poverty (there is no specific target associated with the shared prosperity goal). 2. Extreme Poverty (1 page): Extreme poverty (consumption per capita of less than US$ 1.25/day in 2005 PPP equivalent) is almost non-existent in the EU11. The focus of the RER is therefore on shared prosperity and will also present poverty trends for the EU11 using two other poverty thresholds: a. US$5.00/day (2005 PPP), which represents an absolute poverty line that is still relevant for many countries in the EU11, and b. The relative poverty line of 60 percent of median national equivalized income, which is the standard used for risk of monetary poverty through the EU. This sub-section will also compare the poverty rates using this threshold with those in the EU15 countries. Although national poverty rates are fairly low for many of these measures, there are regions and sub-regions within countries with elevated poverty rates. To highlight this, a box will discuss the geographic distribution of poverty, using the recently-constructed poverty maps for selected countries, based on the EU relative poverty definition. 3. Shared Prosperity (~6 pages): This section will examine recent trends in the shared prosperity indicator (income/ consumption growth of the bottom 40 percent in each country) using the most recent household survey data available. The section will look at the relative contributions of growth in mean income and changes in the distribution, which together determine the growth of the bottom 40 percent. The section will also examine the characteristics of the bottom 40 percent, and investigate relative income mobility, that is, the degree to which people move in and out of the bottom 40 percent over time. Further details are as follows: a. Recent trends: Using the 2006–2011 EU-SILC (European Union Statistics on Income and Living Conditions) survey data, we will compare the income growth rates of bottom 40 percent with the income growth of the mean in each of the EU11 countries except Croatia. We will also compare these patterns with those observed in the EU15. In those countries that have household budget surveys (HBS) for the same period, we will compare the HBS and EU-SILC to look at the robustness of the results across surveys and welfare measures (income versus consumption). This sub-section will include a box devoted to explaining any issues related to data availability and data quality. Growth incidence curves will be produced for a selected subset of countries in order to get a more detailed picture on the pattern of growth across the entire income distribution, as opposed to the aggregate income growth rates for the bottom 40 2 Because of data limitations, Croatia cannot be included in many of the analyses for this special topic chapter. Croatia is not included in any of the EU-SILC microdata that have been publicly released to date. To mitigate this data gap we will use available data from Croatia’s Household Budget Survey whenever possible. 5 percent and the population as a whole. Finally, we will discuss the relationship between inequality and shared prosperity. b.Who is the in the bottom 40 percent? This sub-section will develop profiles and a comparative analysis of key characteristics of the first quintile, second quintile and the top 60 percent for the EU11 countries. Under the EU risk of relative poverty definition, approximately 10 to 22 percent of the population, or roughly the first quintile, is below the poverty threshold. Separating the bottom 40 percent into the first and second quintiles provides insights about how the second quintile—which may be seen as an emerging middle class that is still vulnerable to falling into poverty—differs from those who are below the poverty threshold and those who are in the top 60 percent. The analysis will consider social and demographic characteristics (age distribution, gender and education of the household head, household size, number of children, type of settlement), labor market outcomes (labor force status and sector of activity), and others. In the analysis we would focus on the latest year to give the most recent profile of the bottom 40 percent, but we will also look at the characteristics of the bottom 40 percent in the initial year of the interval and assess how stable the characteristics of the bottom 40 percent are over time. c. Dynamics of the bottom 40 percent: Do people tend to stay in the bottom 40 percent (or in the top 60 percent) over many years, or is there considerable movement of people between these groups over time? Is falling into the bottom 40 percent mostly associated with real income losses in absolute terms, or with real income gains, but at a slower rate than those who are climbing out of the bottom 40 percent? We will use synthetic panel techniques or the panel component of the EU-SILC in a subset of countries to assess how much movement there is between the bottom 40 percent and the top 60 percent, taking into account absolute changes in income as well. 4. Conclusions (1 page): This section will draw out the main findings, with particular focus on selected countries, and consider what might be productive avenues for promoting growth with equity, drawing on the above analysis, or shared prosperity, in the EU11. As shared prosperity is still a new area for the Bank, this section will not provide comprehensive policy prescriptions, but will seek to raise some challenging forward- looking questions on the causal pathways to enhancing shared prosperity and growth. Possible May 2014 Special Topic(s): The Macroeconomic Impacts of Youth Unemployment in EU11 (a combined topic with the SEE RER Team): Youth employment is a chronic and serious economic problem in many EU11 countries and even more so in the Western Balkans, compounding high structural unemployment in many countries and with significant long-term consequences on the structure and performance of these economies. The proposed analysis will aim to better quantify and disaggregate the nature of high youth unemployment to identify the specific nature of youth unemployment, e.g. along gender lines, educational attainment levels, specific groups etc. The analysis will investigate the link to long-term structural unemployment, leading to a loss of skills and human capital, the potential deterioration of productivity and economic growth, and the implications for poverty, shared prosperity and 6 future dependency ratios (given current demographic projections). Beyond the question of economic growth outcomes, boosting youth employment is expected to exert a positive impact on the public finances. A selection of focus countries may be featured from each region to illustrate the above impacts. Reforming the State Owned Enterprises (led by FPD and PREM). SOE operations represent large and often unsustainable shares of government budgets in several EU11 countries that are struggling to implement difficult fiscal consolidation programs. Also, the large share of SOEs in economic activity is distortionary, potentially undermining private sector dynamism and job creation while representing actual and contingent fiscal costs. This note will provide a comparative review of the size and structure of SOEs and their private sector and fiscal impacts, building on the joint work between FPD and PREM, and will seek to identify some of their effects with a particular focus on policy options for accelerating (and sustaining) reform–perhaps looking at more successful reformers in the region such as Poland. Migration: Trends, Perils, and Opportunities. Many EU11 countries are experiencing significant outmigration, which contributes to their rapidly aging societies with attendant impacts on labor force, productivity, government budgets as well as external accounts. The note will provide a region-wide perspective on recent trends in migration, highlighting key channels of impact on these economies and related policy challenges. It will also draw policy lessons based on international experience. Review and Collaboration The EU11 RER is a collaborative exercise across various dimensions.  Review procedures: Clearance procedures for the Report need to be streamlined to ensure that at the time of the launch the Report reflects the latest available information. The Report is currently reviewed by COs, the IMF and EC, and is shared with counterparts in Government with approval given by the Director of ECA PREM—however the review times are compressed. This feature helps to ensure that the Report is relevant and attracts media coverage of the report’s messages, although it also raises risks regarding quality and can reduce the wider ownership of the product within the Bank. To mitigate these risks the EU11 core team will seek to involve senior staff and Country Managers more in the review and dissemination processes.  The EU11 core team: The collaboration on the EU11 RER has strengthened team work among the economists located in offices in Brussels, Bucharest, Sofia, Warsaw, Washington, and Zagreb. It has widened the knowledge of team members beyond their specific country assignments and helps to develop a Bank team ‘view’ that can be consistently presented to both within and externally.  Other Bank teams: The team collaborates closely with the Washington -based DECPG group to draw on their data base and ensure that the RER reflects accurately their latest information. Depending on the issue, staff from HD, FPD and SD have contributed to either the macroeconomic part or the focus notes of the RER. The team plans to continue to work even more closely with other sectors in ECA, particularly through the Special Topics. In addition, the team will also seek opportunities to collaborate with the 7 SEE RER and the Russia RER on special topics as well as the poverty and public sector clusters in PREM.  Counterparts: The EU11 RER engages client countries and partner organizations in a dialogue on key economic policy issues. Counterparts from the ministries of finance and central banks, along with colleagues from ECFIN and the IMF, are invited to comment on the draft macroeconomic report. Comments and feedback will be sought from experts, dealing with the particular issues analyzed in each of the special topic paper.  Researchers: Collaboration with research community enriches the analysis of the report with views of regional experts. Engaging external experts as contributors to the special focus notes will continue. Dissemination The EU11 RER tailors dissemination efforts to different audiences.  EXT involvement: The team works closely with the EXT team in each of the ECCU5 country offices, Brussels and Washington for media coverage. The EU11 RER is released with country-tailored press releases and media conferences. The RER is often featured as an ECA highlight story in the Bank intranet.  Media impact: The EU11 RER engages the public to participate in an informed debate about the direction of reforms in their countries. The RER is usually covered by in-country and international media reports via newspapers, magazines, on-line, TV. The EU11 RER ranks regularly among the top ECA web sites visited and reports downloaded (see Appendix 1). Efforts to exploit social media tools will also be made with the presentations of the RER. Social media may have a good potential for increasing the outreach of the report and a coordinated effort between the RER team and ECA EXT to tap into this vehicle will be made.  Targeted audiences: Policy makers in the EU11 and from the EU institutions, the media, academics, policy analysis, and investors interested in Central European economic issues are invited to dedicated presentations of the report’s findings. The RER team will continue to explore opportunities to present the RER, including the special topic papers, to audiences of policy makers, investors, academics, and the public.  Complementarities with other Bank reports: In the June 2012 RER launch, a companion presentation of the Global Economic Prospects was carried out. This can create a welcome complementarily between the two reports (although it risks some overshadowing) and the team will consider this model in future launches should the RER coincide with other suitable reports (e.g. the SEE RER, the GEP, etc).  Launch method and venues: The RER has usually been launched in one of the main regional offices, with VC connection to others, with country economists handling country-specific discussions. However, while this is a popular event in the main location, this risks diminishing the launch in the other locations. There is also expected to be a significant untapped audience for the Report in Brussels amongst the EC, journalists and lobby groups etc. The team will therefore consider various options to launch the next issue (December 2013) in the Brussels, Poland, Romania, Bulgaria and Croatia offices. The approach should maximize the impact of the Report with the Bank’s main focus groups, as well as providing additional exposure and ownership for country office staff in leading the dissemination. As in the past and depending on demand, the extended team could also disseminate the Report on demand in other cities than the launch cities 8 following the initial wave of presentations. The team will strengthen its efforts to engage the media and country-based think tanks in dissemination events and to gather feedback to help refine future launches.  Timeline: The target launch dates for the upcoming RERs are early December 2013, and June 2014. 3. TEAM COMPOSITION AND BUDGET The EU11 RER ‘core team’ will continue to comprise the country economists covering the eleven countries. Namely, the core team will comprise: Stella Ilieva, Leszek Kasek, Ewa Korczyc, Matija Laco, Sanja Madzarevic-Sujster, Catalin Pauna, Pedro Rodriguez, Emilia Skrok and Theo Thomas (TTL). Contributors to the macroeconomic report will comprise members of the core team, DECPG, the ECA finance sector group (FPD) as well as on- demand contributions from the IFC the Doing Business team and the ECA poverty and public sector teams. Contributions to the focus notes will be sort from Bank staff from the ECA region and/or external experts. Peer reviewers are: Maurizio Bussolo (Lead Economist, ECACE), Ashley Taylor (Senior Economist, EAP) and Alexander Rowland (Communications Officer, ECCBK). The RER is a programmatic task. The EU11 RER Bank budget is proposed to be US$300,000 for two issues of the report in FY14. Indicative FY14 EU11 RER Budget Staff Time $125,000 Focus Notes (STCs and Staff Time) $125,000 Logistics, team meetings, training, printing, dissemination $50,000 Total: $300,000 4. RESULTS MATRIX Result Indicator Two high quality reports on key macroeconomic and  On-line and printed publication of two reports (December 2013 and special topic issues June 2014)  Successful main launches in EU11; targeted and on-demand presentations in Brussels, Washington, other.  Successful dissemination via press, online and social network media (online chats, facebook, twitter, linkedin, email etc.) measured by the Effective dissemination and number of press articles, online hits on the Bank website and the outreach number of participants in various online events (to be collected by the EXT team within a month after each report)  EU11 policymakers, think tanks and/or academics participation at launches and RER events  Tracking of printed and on-line report distribution 9 Annex 1: Production Schedule for the 28th Issue (December 2013) TENTATIVE TIMELINE Meeting to form the team and potential assignments within the report, take September 25 stock and draw lessons from previous issues October 29 Country notes prepared by the CEs, 1st round data submission Nov 8 Draft sector sections completed and sent to TTL Nov 11 First draft of special-focus note(s) Nov 15 EU11 RER team discussion Nov 16 Draft report prepared and updated Draft for management review and clearance (SM, CD, CMs, SD), authorities; Nov 18-25 Revised draft shared with the IMF, and ECFIN for feedback Nov 26 Revision and data updates completed; PPT prepared Nov 29 Press release drafted and PPT sent for clearance and translation Dec 2 Final report sent to print Dec 10 Launch and main dissemination Dec 10-18 Other dissemination events The timetable for the twenty ninth issue will be developed using the above model, aiming for the launch by early June. 10 Annex 2: Number of hits and downloads for the RER# 26, 27 EU11 Regular Economic Report: economic recovery on hold (#27). Special Topic: determinants of job creation in EU11 - evidence from firm level data FEATURE STORY: Strength in Diversity: Embracing New Markets in the EU11 Overall (2 1st day after 2nd day after 3th day after weeks) launch launch launch Page Views 527 179 117 19 Visits 401 126 86 18 PRESS RELEASE: EU11 Growth Drops in 2012 and Remains Slow in 2013 Amid Weak External Confidence All languages Overall (2 1st day after 2nd day after 3th day after weeks) launch launch launch Page Views 661 218 167 21 Visits 548 174 133 20 Previous Launch (#26) EU11 regular economic report - macroeconomic report : faltering recovery - special topic : the economic growth implications of an aging European Union FEATURE STORY: The EU 11 in an Aging Europe All languages Overall (6 1th day after 2nd day after 3rd day after mos) launch launch launch Page Views 2,229 455 300 85 Visits 1,547 229 195 57 PRESS RELEASE: EU11 Growth to Remain Weak in 2013 Amid Uncertain External Environment All languages Overall (6 1th day after 2nd day after 3th day after mos) launch launch launch Page Views 886 17 18 9 Visits 703 12 13 8 Additional observations on EU11 RER #27: POLAND: CROATIA: ROMANIA: BULGARIA: Media coverage in All dailies (7 of them) Monitoring of the online, EU11 RER launch Poland reached 40 Relevant news portals total items: 100+ Media coincided with Global articles, including an (index.hr. tportal.hr) webpages: 65 Blogs: 3 Economic Prospects interview Ewa gave to picked up the story. Facebook: 7 Twitter: 1 (GEP) report, so media Warsaw Business Journal. Croatian Television, Aggregators: 23 coverage includes both. broadcast a story on the report during prime time Estimated viewership Journalists focused on a news. web: estimated 192.368 users in Romania lowered growth forecast 6,500 users for Bulgaria, and included comments from the Prime Minister who 11 said that the EU11 forecast is perfectly in line with the Government's assumption for lower growth this year. Media coverage totals approximately 25 articles. 12