World Economy

Eastern Europe Set for Strongest Growth

EBRD expects Poland’s economy to grow by 4.1%.EBRD expects Poland’s economy to grow by 4.1%.

Central and southeastern European economies are on course for their strongest year of growth since the global financial crisis, in part due to a surge in wages and stronger demand from the recovering eurozone, according to forecasts from the European Bank for Reconstruction and Development.

The 18 nations in the region, seven of which are eurozone members, suffered a sharp slowdown in the wake of the crisis and that was prolonged by the euroland’s subsequent struggles with government debt and weak banks. As a consequence, for much of the past decade, the expected convergence between incomes in eastern and western Europe has stalled, Foxnews reported.

But there are signs it has resumed, with the EBRD significantly raising its growth forecast for 2017 and to a lesser degree, for 2018. It now expects Poland’s economy to grow by 4.1% in 2017, having projected an expansion of 3.2% in May. It now expects Romania’s economy to grow by 5.3% in 2017, having previously forecast an expansion of 4%.

In contrast to developed economies, the pickup in growth is driving and in turn being supported by a jump in wages. According to Sergei Guriev, the EBRD’s chief economist, the region hasn’t lost middle-income jobs to lower wage countries, unlike the US and parts of western Europe.

“In our region it’s somewhat different, especially in parts where we have demographic challenges and outflows of the young and skilled,” he told The Wall Street Journal.

Many countries in the region have aging populations, while younger workers have moved to Germany, the UK and elsewhere in search of better jobs and higher pay. The EBRD warned that a scarcity of skilled workers could hold back growth over coming years.

The EBRD also expects inflation rates to pick up across the region, while remaining below the targets set by its central banks. The National Bank of Romania raised one of its interest rates for the second-straight month Tuesday, but most banks have held back as they await the effects of the European Central Bank’s January reduction in its bond-buying program.

The acceleration in growth in a region that was particularly hobbled by the financial crisis and its aftermath is another sign that the global economy is having a better year than many had expected.

It sharply raised its growth forecast for Turkey to 5.1% from 2.6% in May and it now expects Russia to record a stronger return to growth after two years of contraction than it did in May. It now sees the economy growing by 1.8% in 2017 and 1.7% in 2018, but warned longer-term prospects are poor.


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