Introduction
Growth has remained relatively weak across most of the transition region over the past year. Following the initial recovery after the 2008-09 global financial crisis, growth began slowing in the second half of 2011, against the backdrop of the intensification of the sovereign debt crisis in the eurozone. While a recovery started to take hold in the single currency area in the second half of 2013, two other major developments have had a negative impact on the economic outlook for the region.
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First, growth in the region has been negatively affected by the geopolitical events observed in Ukraine since late 2013, so the outlook for growth has become significantly more uncertain. Second, prior to that, some countries in the EBRD region were (like other emerging markets) affected by expectations that quantitative easing would be tapered in the United States and monetary policy would be tightened in advanced economies more generally, which prompted outflows of capital.
The region as a whole grew at an annual rate of 2.3 per cent in 2013, compared with 2.6 per cent in 2012. Stronger growth in south-eastern Europe (SEE) and Turkey was more than offset by decelerating growth in Russia. Average growth in the southern and eastern Mediterranean (SEMED) region picked up only slightly, mainly on account of a strengthening in the performance of Morocco’s economy. Morocco benefited from a strong harvest, as well as increased foreign direct investment (FDI), on account of a more favourable policy environment.
Thus, the average annual growth rate in the region has now declined every year since 2011, and current projections suggest that 2014 will see it standing below 3 per cent for the third consecutive year. Growth has not been this weak over a three-year period since the transition recession of the early 1990s. This episode of moderate growth is likely to extend into 2015 and underscores the need to address structural impediments to growth across the region.