World Bank Report Launch - Europe and Central Asia Economic Update: Polarization and Populism

Publicat: 22 Noiembrie 2016

World Bank Report Launch
“Europe and Central Asia Economic Update: Polarization and Populism”


A brief synopsis of the ECA Economic Update is presented below:

There will be a modest increase in GDP growth in 2016 for countries in the Europe and Central Asia (ECA) region. The region is expected to grow a modest 1.6 percent in 2016 – up slightly from 1.4 percent in 2015 – but declines in both incomes and consumption will likely mitigate this modest growth. This trend is projected to continue into 2017 and 2018, with growth forecast at 1.5 percent and 1.8 percent, respectively. Growth is forecast to remain positive in Eastern Europe and Central Asia, with GDP growth of 0.7 percent in 2016, 2.3 percent in 2017 and 2.6 in 2018. Meanwhile, in the European Union and the Western Balkans, growth is projected to dip from 1.8 percent in 2016 to 1.4 percent in 2017, before climbing back to 1.7 percent in 2018.

Low oil and other commodity prices, a decline in investment rates in the European Union, and ongoing structural challenges are hampering growth in the region and contributing to an increase in populism and polarization. The Brexit vote and the refugee crisis are testing the European Union’s internal cohesion. Continued vulnerabilities in European banking sectors are curbing the economic recovery. Russia, Eastern Europe, Central Asia, and the Caucuses are still grappling with the consequences of low oil prices, increasingly compounded by low prices of other commodities. The fall in commodity prices has forced major adjustments in fiscal and monetary policies, has made banking sector reforms vital and urgent, and requires a shift of economic activity toward exportable products. Geopolitical frictions in the region further complicate the challenges.

Absent strong policy responses, could impair growth and poverty reduction over the long term. In this environment cyclical, macroeconomic policy can only be a small part of the solution. In the western part of the region replenished fiscal space is becoming available, while monetary stimulus is reaching its limits. In the eastern part of the region the opposite is true. Looser monetary policy is a real option, while fiscal policies still have to adjust further to fallen oil revenues and reduced remittances.

The biggest task for societies and governments is to provide new perspectives in a new economic era, without falling back on fixes that worked in the past under very different circumstances. Coping with the structural challenges and limiting the rise in political extremism will require policies that support adjustment to these new economic realities while minimizing the pain that such adjustments can cause. Given the uncertainty surrounding many of these issues, further research is essential to guide policy choices.

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