Investment to the Rescue

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wiiw Forecast Report No. Spring 2014,
132 pages including 27 Tables and 25 Figures

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No.TitleAuthor 
1ALBANIA: INSTAT replayMario Holzner details
2BOSNIA AND HERZEGOVINA: Getting rid of the straitjacketVladimir Gligorov details
3BULGARIA: Economy seeking directionRumen Dobrinsky details
4CROATIA: Economic recovery further delayedHermine Vidovic details
5ESTONIA: Waiting for Scandinavian neighbours to reviveSebastian Leitner details
6HUNGARY: Moderate growth in 2013, moderate acceleration in 2014Sandor Richter details
7KAZAKHSTAN: Consumption boom fuelled by credit to be over soonOlga Pindyuk details
8KOSOVO: Road to the New KosovoMario Holzner details
9LATVIA: Consumers in excellent moodSebastian Leitner details
10LITHUANIA: Euro area within reachSebastian Leitner details
11MACEDONIA: Steady improvementVladimir Gligorov details
12MONTENEGRO: Slowly improving pictureVladimir Gligorov details
13POLAND: A sigh of reliefLeon Podkaminer details
14ROMANIA: After export boom in 2013 recovery of consumption and investments expectedGabor Hunya details
15RUSSIAN FEDERATION: Stuck in transition!Peter Havlik details
16SERBIA: Early elections, then reformsVladimir Gligorov details
17SLOVAKIA: Better growth prospects aheadDoris Hanzl-Weiss details
18SLOVENIA: Bailout avoidedHermine Vidovic details
19THE CZECH REPUBLIC: A change (for the better?)Leon Podkaminer details
20TURKEY: ‘Blowing in the wind’ of international capital flowsMichael Landesmann details
21UKRAINE: Teetering on the brinkVasily Astrov details
The Vienna Institute for International Economic Studies (wiiw) expects GDP in Central, East and Southeast Europe (CESEE) to pick up speed and grow on average by 2-3% over the forecast period 2014-2016: a major driving force rooted in an upward reversal of public and private investment. The question remains, however, whether investment-led growth in the CESEE countries is merely a statistical base effect of a few replacement investments or an indication of a profound paradigmatic shift. Increasing evidence suggests the latter for a number of reasons.

During the ongoing economic crisis, public investment was severely reduced. However, in times of extreme uncertainty, the private sector is hesitant to invest. Hence, the public sector has to take the lead. It seems that the time for action has now come. This holds especially true for the New Member States, where towards the end of the previous year additional efforts were made to raise the absorption rate of the funds allocated within the context of the EU multiannual financial framework for 2007-2013 that was about to come to a close. Over the remaining disbursement period of the biennium 2014-2015 substantially higher amounts of EU-funded investment are to be expected. Given that, in practically all cases, national co-financing is also required, CESEE public capital investment will increase, with private investors likely following in its slipstream.

Apart from a number of transport infrastructure projects, a host of thermal power plant projects are in the pipeline, as are several major investments in the construction and expansion of nuclear power plants across the region. Apart from public and semi-public infrastructure investment initiatives that have the potential to spur subsequent private investment, improving growth prospects in the euro area, the CESEE economies’ main trading partner, are likely to encourage export industries in the region to modernise and increase their capital stock. This should help avert a lapse into a deflationary spiral and foster a shift towards better equilibrium with lower unemployment rates over the medium term.

However, substantial downward risks include possible effects from the current Russia-Ukraine conflict; in particular the interruption of energy supplies, potential trade embargoes or additional interest rate risk premia. All this could adversely affect investment-led growth in CESEE.

 

Reference to wiiw databases: wiiw Annual Database, wiiw Monthly Database

Keywords: Central and East European new EU Member States, Southeast Europe, financial crisis, Balkans, Russia, Ukraine, Kazakhstan, Turkey, economic forecasts, employment, foreign trade, competitiveness, debt, deleveraging, exchange rates, fiscal consolidation

JEL classification: C33, C50, E20, E29, F34, G01, G18, O52, O57, P24, P27, P33, P52

Countries covered: Albania, Bosnia and Herzegovina, Bulgaria, Central and East Europe, CIS, Croatia, Czech Republic, Estonia, European Union, Hungary, Kazakhstan, Kosovo, Latvia, Lithuania, Macedonia, Montenegro, New EU Member States, Poland, Romania, Russia, Serbia, Slovakia, Slovenia, Southeast Europe, Turkey, Ukraine

Research Areas: Macroeconomic Analysis and Policy, Labour, Migration and Income Distribution, International Trade, Competitiveness and FDI

ISBN-13: 978-3-85209-037-5


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