Recovery - in Low Gear across Tough Terrain


Vasily Astrov, Vladimir Gligorov, Peter Havlik, Mario Holzner, Gabor Hunya, Sebastian Leitner, Zdenek Lukas, Anton Mihailov, Olga Pindyuk, Leon Podkaminer, Josef Pöschl, Sandor Richter and Hermine Vidovic

wiiw Current Analyses and Forecasts No. 7, March 2011
129 pages including 30 Tables and 23 Figures

free download

You can also download separate country reports of this report

1Albania: Something is rottenMario Holzner Free Download
2Baltic States: Exports trigger broader based economic upswingSebastian Leitner Free Download
3Bosnia and Herzegovina: The choice between take-off and slow growth Josef Pöschl Free Download
4Bulgaria: A painful rebalancingAnton Mihailov Free Download
5Croatia: Difficult to come out of the crisisHermine Vidovic Free Download
6Hungary: Gradual recovery amidst persistent uncertaintiesSandor Richter Free Download
7Kazakhstan: Fast growth is back, but sustainability problems remainOlga Pindyuk Free Download
8Macedonia: Stable recovery, rising political tensionsVladimir Gligorov Free Download
9Montenegro: New government strives for stabilityVladimir Gligorov Free Download
10Poland: Continuing growth conditional on competent policyLeon Podkaminer Free Download
11Romania: Election cycle aheadGabor Hunya Free Download
12Russian Federation: Oil-fuelled recovery stallsPeter Havlik Free Download
13Serbia: Social tensions rise ahead of electionsVladimir Gligorov Free Download
14Slovakia: Despite export-driven growth, high unemployment will persistZdenek Lukas Free Download
15Slovenia: Impact of the recession still strongly feltHermine Vidovic Free Download
16The Czech Republic: Growth slowdown after the 2010 speed-upLeon Podkaminer Free Download
17Turkey: Calming-down of a growth bonanza Josef Pöschl Free Download
18Ukraine: Advancing state's withdrawal from the economyVasily Astrov Free Download

The outlook for the world economy has improved in the course of 2010 and the recovery has gained strength in the EU as well. The Central, East and Southeast European countries (CESEE) have also recovered from the crisis; the majority of them recorded positive GDP growth. On average, the recent revival of exports has been even stronger than their growth before the crisis. By way of contrast, the trends in industrial output have so far remained more or less flat. The persistent decline in construction and fixed investments – both related to the still hesitant credit markets – represents one of the key downward internal risks to our moderately optimistic regional economic forecast.

The general outlook for the CESEE region in the baseline scenario reckons with a gradual strengthening of economic growth over the period 2011-2013, in most cases rarely exceeding 4% per annum. GDP growth will become more broadly based. The formerly predominant role of external demand will weaken somewhat, while both household consumption and gross fixed investments will ultimately contribute positively to GDP growth. With exports, industrial output levels and eventually also GDP growth having already recovered, the economy is seen as having largely returned ‘back to normal’ – yet with at least two important differences: (1) post-crisis growth will be slower. That slower growth, however, also implies that (2) the labour market situation will be ‘very far from normal’ as unemployment will remain high, with young and low-skilled workers being especially adversely affected, and any improvement only gradual and delayed.

Inflation rose throughout 2010 as food and commodity prices soared; in general, however, it will pose no (or little immediate) threat. The moderate economic upturn and a revival of capital inflows have resulted in renewed appreciation pressures. The forecasts point to a gradual deterioration of current account positions in all CESEE countries, yet the return (or persistence) of extreme imbal-ances are only expected for Montenegro, Albania and Serbia. The financing constraint with respect to both domestic and external loans will constitute one of the key brakes on future economic growth. Given the sorry state of public finances and the ensuing budget consolidation efforts, we cannot expect any new additional growth-stimulating measures from the public sector – on the contrary, owing to the limited fiscal space government deficits and public debts will be scaled back.

The sharp drop in GDP in most CESEE countries during the crisis resulted in both absolute and relative declines in their per capita GDP. The catching-up process of the previous decade was thus interrupted and income gaps vis-à-vis Western Europe widened. In the baseline GDP growth sce-nario wiiw reckons with a renewed catching-up process starting as early as 2011 (after losing 5 to 7 years in terms of income convergence).

Related Publications

FC7 Press Release (PDF)

FC7 Presentation in German (PDF)



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

Keywords: Central and East European new EU member states, Southeast Europe, future EU member states, Balkans, former Soviet Union, Turkey, economic forecasts, employment, foreign trade, competitiveness, exchange rates, inflation, monetary policy

JEL classification: G01, G18, O52, O57, P24, P27, P33, P52

Countries covered: Albania, Baltic States, Bosnia and Herzegovina, Bulgaria, Visegrad countries, CIS, Croatia, Czechia, Estonia, European Union, Hungary, Kazakhstan, Latvia, Lithuania, North Macedonia, Montenegro, New EU Member States, Poland, Romania, Russia, SEE, Serbia, Slovakia, Slovenia, Turkey, Ukraine

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