Weathering the Global Storm, yet Rising Costs and Labour Shortages May Dampen Domestic Growth


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

wiiw Current Analyses and Forecasts No. 1, February 2008
151 pages including 51 Tables and 20 Figures

free download

You can also download separate country reports of this report

1Albania: resource blessingMario Holzner Free Download
2Baltic States: entering a chill-out phaseSebastian Leitner Free Download
3Bosnia and Herzegovina: the need to sign on the dotted lineJosef Pöschl Free Download
4Bulgaria: surging FDI keeps economy steadfastAnton Mihailov Free Download
5China: global slowdown helping to curb excessive growthWaltraut Urban Free Download
6Croatia: strong GDP growth and resurgent inflationHermine Vidovic Free Download
7Hungary: deficit reduction plan topped, economy supercooledSandor Richter Free Download
8Kazakhstan: after temporary slowdown, growth accelerates againOlga Pindyuk Free Download
9Macedonia: slowly improvingVladimir Gligorov Free Download
10Montenegro: is it sustainable?Vladimir Gligorov Free Download
11Poland: expansion to continueLeon Podkaminer Free Download
12Romania: inflation target failed, more uncertainty aheadGabor Hunya Free Download
13Russian Federation: slowdown in sight, external surplus shrinksPeter Havlik Free Download
14Serbia: time to decideVladimir Gligorov Free Download
15Slovakia: booming economy looking ahead to the euroZdenek Lukas Free Download
16Slovenia: rapid GDP growth with accelerating inflationHermine Vidovic Free Download
17The Czech Republic: slowdown aheadLeon Podkaminer Free Download
18Turkey: Turkey’s economy dipping its toe in troubled watersJosef Pöschl Free Download
19Ukraine: fiscal expansion at a time of boomVasily Astrov Free Download

The Vienna Institute for International Economic Studies (wiiw) has just released an analysis of current economic developments in Central, East and Southeast Europe, Kazakhstan, Russia, Ukraine and China (including brief country reports), as well as a medium-term forecast for these countries in the period 2008 2010. A special section investigates labour market developments and the vulnerability of financial markets in individual countries.

The majority of the new EU member states (NMS) have been enjoying a period of robust economic growth. The current turbulence on global financial markets is not going to hurt directly or seriously. Even the possible indirect effects should not be too severe. GDP growth is projected to slow down from about 6% in 2007 to some 5% per year over the period 2008 2010. Inflation will gradually decline, yet in most NMS it will stay above that of the eurozone. Economic growth will be mainly driven by rising consumption (supported by rising labour incomes) and by investments. The latter will be bolstered by much higher transfers from the EU budget. Except for Bulgaria, Romania and the Baltic States, all of which remain vulnerable to external shocks, current account deficits will not be excessively high. In sum, the NMS are expected to remain a region displaying dynamic growth in the years to come, maintaining their competitive advantages as attractive locations for both trading and investment purposes.

The situation on the labour market has improved dramatically, unemployment has declined rapidly. The economic growth is no longer 'jobless'. On the contrary, most countries in the region are now reporting labour shortages - especially of skilled workers - which could well become a serious constraint on economic growth. After a slight dip in growth in 2008, wiiw expects the Southeast European region to enjoy faster GDP growth in 2009 and 2010 of up to 6%. Remittances and a credit boom will continue to fuel the core growth driver: domestic demand. Strong investment growth and incipient re industrialization go hand in hand with an increase in employment. Stable competitive performance (except for Serbia and Turkey) will also provide a better environment for stronger export growth. Nevertheless, the net export position is still unfavourable for want of FDI and technology transfer. The slowdown in global growth, the hikes in oil, metal and food prices on world markets, as well as the subprime crisis are expected to have only a minor impact on the region. However, Serbia's unbalanced growth path in the wake of the Kosovo crisis poses a regional risk. Prospects of EU accession have improved for all countries, except Turkey.

Kazakhstan, Russia and Ukraine are all expected to grow by more than 6% per year in the period 2008 2010 - also slightly slower than in the previous two years. A modest cooling down of growth is projected for China as well.

This forecast starts a new series with the title ¿Current Analyses and Forecasts¿. It contains an appendix with selected indicators of competitiveness.


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

Keywords: Central and East European new EU member states, Southeast Europe, Balkans, former Soviet Union, China, Turkey, GDP, industry, productivity, labour market, foreign trade, exchange rates, inflation, fiscal deficits, EU integration

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

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

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