Growth in the emerging and developing countries of Europe and Central Asia (ECA) is expected to slow to 1,8 % min 2019 (down from 3,2 % in 2018), a four-year low, the latest report on Europe and Central Asia Economic update reads.
Developments and outlook
In Belarus, a significant slowdown in economic growth was recorded. This is due to the deterioration in terms of trade and longstanding structural weaknesses in the economy.
Output has stagnated in crucial sectors, marking the end of the 2017-2018 recovery. The room for fiscal and monetary stimulus is limited due to adverse consequences for macro stability.
Potential growth is likely to remain below 2% unless major progress is made on structural reforms to improve productivity and competitiveness.
In 2020–2021, GDP growth is expected to reach 1,3% and 1,2% – the lowest growth rate in the region. Over this period, the poverty headcount is projected to remain flat.
This is due to positive, yet weak economic growth, smaller increases in real wages, steady labour market indicators: higher unemployment rates among those with low levels of education.
Europe and Central Asia
Regional growth was hindered by marked weakness in Turkey, which suffered from substantial financial market stress, as well as sluggish activity in Russia amid oil production cuts.
There was robust growth in other parts of the region, such as Central Europe and Central Asia, and the South Caucasus strengthened.
Regional growth is expected to pick up in 2020-2021, as Turkey recovers from its sharp growth slowdown and Russia strengthens. But there are significant downside risks to this outlook.
Chief among them is a sharper than expected slowdown in the region’s most important trading partner, the euro area, and the escalation of global policy uncertainty – trade tensions and Brexit.
Countries with large current account deficits with heavy reliance on capital flows or sizable foreign currency-denominated debt may be subject to sudden shifts in investor sentiment.
Sharp fluctuations in energy prices also represent a downside risk. The region faces many long-run challenges to development, the report stresses.
It will have to improve governance, complete the transition to competitive and inclusive markets, strengthen the environment for private investment and innovation, and adapt to climate change.
Worsening demographics, including a shrinking working-age population, add to these challenges.