Economic growth in Central and Eastern Europe is expected to slow to 3.3 per cent next year from 3.7 per cent in 2019, as growth slows in major trading partners, including the eurozone and Russia, the World Bank says in its June 2019 Global Economic Prospects: Heightened Tensions, Subdued Investment.
At the same time, activity strengthened in the South Caucasus and the Western Balkans. In fact, the South Caucasus is projected to grow to 3.9 per cent in 2020 from 3.7 per cent this year and the Western Balkans is anticipated to hold stable at 3.8 per cent in 2020, as infrastructure investment and private consumption helped deliver growth in economies including Kosovo, North Macedonia and Serbia.
Monetary policy tightening has paused in the region and fiscal policy has loosened in 2019. Inflation has been trending up in some of the larger economies in the region since the start of the year, notably in Hungary, Poland and Romania drove in part by rising oil prices.
“Stronger economic growth is essential to reducing poverty and improving living standards,” said World Bank Group President David Malpass. “Current economic momentum remains weak, while heightened debt levels and subdued investment growth in developing economies are holding countries back from achieving their potential. It’s urgent that countries make significant structural reforms that improve the business climate and attract investment. They also need to make debt management and transparency a high priority so that new debt adds to growth and investment.”
The region’s outlook remains subject to significant downside risks. Chief among these is a sharper-than-expected slowdown in the region’s most important trading partner, the Euro Area. In Central Asia and Eastern Europe, slowing activity in Russia could impact remittances, which account for an important portion of income in countries including Moldova and Ukraine.
Countries with large current account deficits, heavy reliance on capital inflows, or sizeable foreign-currency denominated debt, such as Belarus, Croatia, Georgia, Moldova and Ukraine, could be subject to sudden shifts in investor sentiment.
Furthermore, policy disagreements between some Central European countries and the European Union, election outcomes, an escalation of international trade restrictions, and back-pedalling on structural reforms could also unsettle business and investor confidence.