| By: |
Amat Adarov (The Vienna Institute for International Economic Studies, wiiw);
Vasily Astrov (The Vienna Institute for International Economic Studies, wiiw);
Serkan Çiçek (The Vienna Institute for International Economic Studies, wiiw);
Rumen Dobrinsky (The Vienna Institute for International Economic Studies, wiiw);
Vladimir Gligorov (The Vienna Institute for International Economic Studies, wiiw);
Doris Hanzl-Weiss (The Vienna Institute for International Economic Studies, wiiw);
Peter Havlik (The Vienna Institute for International Economic Studies, wiiw);
Mario Holzner (The Vienna Institute for International Economic Studies, wiiw);
Gabor Hunya (The Vienna Institute for International Economic Studies, wiiw);
Sebastian Leitner (The Vienna Institute for International Economic Studies, wiiw);
Isilda Mara (The Vienna Institute for International Economic Studies, wiiw);
Olga Pindyuk (The Vienna Institute for International Economic Studies, wiiw);
Leon Podkaminer (The Vienna Institute for International Economic Studies, wiiw);
Sandor Richter (The Vienna Institute for International Economic Studies, wiiw);
Robert Stehrer (The Vienna Institute for International Economic Studies, wiiw);
Hermine Vidovic (The Vienna Institute for International Economic Studies, wiiw) |
| Abstract: |
Summary The economic outlook in the countries of Central East and Southeast
Europe (CESEE) will improve in 2015–2017 with the forecast average economic
growth rate close to 3% – some 1.5 pp. higher than the expected euro area
average growth. Only the CIS countries and Ukraine will be an exception to
this trend. Household consumption, aided by labour market improvements and low
inflation, will be the main driver of growth. These are the main results of
the newly released medium-term macroeconomic forecast by the Vienna Institute
for International Economic Studies (wiiw), revising slightly upwards the
growth projections relative to the Spring 2015 forecast. Sub-regional growth
trends vary greatly. At one end of the spectrum, the Central European
countries are expected to continue their robust recovery with growth rates in
the order of 2-4% per annum over the forecast horizon (2015–2017). At the
other end, the prospects facing the CIS countries are particularly poor unless
global commodity prices recover, both Russia and Belarus already tumbling into
a deep recession (expected growth in 2015 -3.7% and -3.8%, respectively),
while Kazakhstan is following suit with a deceleration in growth (1.5% in
2015). Whereas economic activity in the Baltic countries suffered this year on
account of their exposure to Russia, they appear to be resilient and recovery
is still on track with growth in the medium term expected to be in the range
of 1.5-3%. Overall, Southeast Europe displays improving, but irregular growth
tendencies, in many cases accompanied by macroeconomic imbalances and deep
structural problems. Serbia and Croatia, the worst performers in the group,
will enjoy hardly any growth at all in 2015 (0.1% and 0.7%, respectively),
while growth in other countries will be in the order of 2-4%. The situation in
Ukraine remains particularly fragile and serious downside risks persist,
although there are signs that the recession, much deeper than originally
anticipated (with output projected to drop by -11.5% this year), might be
bottoming out. Net exports are providing only a limited, if at all positive,
contribution to growth, while household consumption, supported by labour
market improvements and low inflation due to weak commodity prices, is coming
to the fore as the main engine of growth across most of the CESEE region;
consumption is expected to remain among the key drivers in the medium term as
well. At the same time, private investment remains the much-needed missing
link in the mechanism essential to rekindling sustainable output growth in the
CESEE region, and public investment may prove to be an important complementary
factor. In this regard, the EU structural and investment funds under the
2014–2020 Multiannual Financial Framework will be instrumental as a source of
co-funding. Inflation remains very weak across the CESEE region, hovering at
near-zero levels on account of low commodity prices, with the exception of the
CIS countries, Turkey and Ukraine, whose inflation spiked owing to exchange
rate pass-through effects that followed sharp currency depreciations in
2014–2015, as well as country-specific factors, such as the food embargo in
Russia and the rise in utility tariffs in Ukraine. The external environment is
only moderately supportive. As the multi-speed recovery of the world economy
continues in 2015, driven primarily by advanced economies and accompanied by
poor performance in large emerging market economies, manifold external risks
also arise that could jeopardise the recovery of the CESEE region, including
geopolitical tensions associated with the situation in Ukraine and the Middle
East, a slowdown in major emerging markets, normalisation of monetary policy
in the USA and low commodity prices (a negative shock for the CIS group).
Special sections of the forecast report focus on some of the potential risks
that have attracted much attention since the beginning of the year, including
the refugee crisis in Europe, recession and import-substitution policy in
Russia, the Volkswagen scandal, the economic slowdown in China and the
implications of the Greek crisis. With the exception of the CIS countries and
Ukraine, however, the CESEE countries appear to be rather resilient to date. |
| Keywords: |
CESEE, economic forecast, Europe, Central and Eastern Europe, Southeast Europe, Western Balkans, new EU Member States, CIS, Russia, Ukraine, Kazakhstan, Turkey, growth divergence, external risks, macroeconomic imbalances, consumption-led growth, unemployment, inflation, competitiveness, public debt, private debt, current account |