WORLD BANK PROJECTS SLUGGISH GROWTH FOR THE SOUTH EAST EUROPE

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While a global slowdown and recent turbulence in the Euro zone have shaken economies of the six countries in South East Europe, their deeper integration with the EU remains the best long term prospect for their growth, according to the new World Bank “South East Europe Regular Economic Report”.

“Our projections are for the growth in this region of 2.5 percent in 2011 and 2.1 percent in 2012,” says Ron Hood, Economist in the World Bank. “However, even these modest growth projections assume that the Eurozone crisis is solved in an orderly manner. Should the crisis worsen, economic growth in these countries could be much worse.”

The effects of a further global slowdown and the prolonged uncertainties around the Eurozone crisis will influence SEE6 economies through trade, foreign direct investment (FDI), foreign banks, and remittances, according to the report.  All these transmission channels would be affected by deeper economic and financial tensions in the EU and the Eurozone.
 

Trade with the EU is a key driver of exports and overall economic growth for SEE6 countries, amounting to between 30 percent and almost half of their GDP.

Beyond trade, EU investors are also the largest aggregate provider of FDI to the region, with net inflows worth over 2 percent of the Western Balkans GDP.

Likewise, Eurozone countries represent a significant source of remittances to all the SEE 6 countries, particularly for Kosovo, Albania, Bosnia and Herzegovina, and Serbia.
 

The presence of foreign banks creates another channel of potential influence. The share of foreign banks in the total assets of the region’s banking system stands at around 89 percent.

 
The report recommends that authorities in SEE 6 countries pursue fiscal prudence, rebuild fiscal buffers, and be prepared for further expenditure consolidation.

Unfortunately, the fiscal performance has deteriorated in all countries since 2008, and few countries in the region still have room to accommodate a worsening of the crisis through allowing automatic stabilizers to operate.

Improving employment opportunities remains another major long term challenge for the SEE6, concludes the report. The high level of unemployment among youth and the low participation of women is a striking feature of the SEE6 labor market.

Moreover, much of the unemployment is long term and several countries have aging populations.