In the aftermath of the global crisis, the economic recovery in Central and Eastern Europe (CEE) is consolidating, with average GDP growth projected to accelerate to 3.8 percent in 2011 from an expected 3.6 percent recorded in 2010. At the same time the growth outlook will vary significantly among countries, with Central Europe, Turkey and the CIS gradually back on track, while South Eastern Europe is still addressing some necessary restructuring issues
This year, we expect some consolidation in the recovery path, with the export-driven recovery scenario favoring intermediate and investment goods. Also, as is typical in the early stages of a recovery, cyclical sectors have been performing better recently: motor vehicles, electrical equipment, chemicals and basic metals have seen the strongest growth over 2009-2010. These sectors are expected to outperform in 2011 as well, also joined by investment goods sectors.
Some industries have been suffering structural changes in the last couple of years with no clear recovery prospects in the near future. A clear example is represented by the mining sector, due to low productivity and low comparative advantage (except for CIS countries) and highly labour-intensive light industries such as textiles, wearing apparel and leather footwear which were in decline in the majority of CEE countries even before the crisis as they were consistently losing the competitive race with low-cost producers from Asia.
Among the sectors most hit by the crisis, construction and real estate should also remain under pressure this year, thus justifying a continued negative outlook in most of the countries. By contract, defensive sectors (Food & Beverages, Telecoms, Utilities) have been more stable throughout the crisis, but are also not going to show rapid growth looking ahead.
The crisis did not change CEE’s long-term potential but some rebalancing of the macroeconomic model is needed, emphasizing a better diversification of the economy and further modernization. Overall, long-term potential growth will be slower than before the downturn, as all the convergence drivers are intact but are less strong than in the past in the context of global environment characterized by higher cost of international liquidity and risk. The uncertain global outlook, growing competition from Asia and some rebalancing from non-tradable toward tradable sectors (particularly in SEE and the Baltic economies where over the last decade FDIs concentrated mainly in real estate and financial intermediation) will shape the region’s growth pattern.
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Length: 68 pages
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