BA-CA study:
South-East Europe driving growth in the New Europe

  • South-East Europe achieved the world's highest rate of income growth since 2000
  • South-East Europe's potential market share in the EU will rise to 8 per cent
  • Dynamic banking market: 300 per cent credit growth until 2014

In the past four years, South-East Europe1 was Europe's top performer in terms of economic growth. With real growth of 23 per cent in this period, the region's economy grew significantly faster than the EU-15 countries and also outperformed the NMS82  (16 per cent). South-East Europe's economic performance also compared very favourably with the dynamic Asian region. As a result of the stable exchange rate against the euro and the euro's appreciation against the US dollar, South-East Europe was the region achieving the strongest growth of income in the world, with an increase of about 50 per cent since 2000. “This year and in the coming year, South-East Europe will remain the most dynamic region in Europe,“ said Stefan Bruckbauer, Deputy Head of the Economics Department at Bank Austria Creditanstalt (BA-CA), at a press conference on 22 May within the framework of the EBRD Annual Meeting in Belgrade. BA-CA expects economic growth to reach 5 per cent in 2005 and 5.5 per cent in 2006 in the region.

Attractive for investors
This positive development has also enhanced the region's overall economic attraction. With over EUR 8 billion in foreign direct investment (FDI) in 2004, South-East Europe accounted for one-third of total FDI attracted by countries in Central and Eastern Europe. According to BA-CA, the environment for direct investment in the region will remain favourable in the coming years. Low wage levels and tax rates as well as further EU integration will make significant contributions to this development. BA-CA's economists expect foreign direct investment in South-East Europe to reach some EUR 10 billion annually in 2005 and 2006, including the forthcoming privatisation projects. South-East Europe will thus account for almost 40 per cent of total inflows of FDI in Central and Eastern Europe. This will make it possible to finance a large part of the growth-driven current account deficit of 8.5 per cent in the region. About one-half of the strong economic growth is supported by investments, which means that part of the FDI-financed current account deficit may be seen as an input for future export success.

Rising market share
In the past four years, South-East Europe has substantially increased its market share in the "old" EU-15 countries, from 1.5 per cent in 2000 to 2.3 per cent in 2004. According to BA-CA's economists, the countries in South-East Europe, especially the EU candidate countries3 , will be able to further improve their position in the EU markets in the coming years. Bank Austria Creditanstalt estimates that, if the candidate countries reach the same level of integration in the medium term as the new member states which joined the EU in 2004, and if the other countries in South-East Europe reach at least half of this level, the market share in the old EU-15 countries could rise to about 8 per cent in the medium term. As a result, the volume of exports to the EU-15 could more than double, with the total amount of the region's exports rising to a level exceeding the current figure by EUR 60 billion.

Europe's powerhouse
"In the coming years, South-East Europe will remain Europe's powerhouse, even if some countries continue to experience political difficulties slowing down their integration process," said BA-CA's economist Stefan Bruckbauer. "For some countries in the region, there is still potential for negative political surprises. At the same time, integration in some countries could make surprisingly fast progress. For example, Bulgaria could catch up with one or the other NMS8 country in the introduction of the euro," Stefan Bruckbauer added.

Impetus to the banking market
These developments are giving impetus to the banking market, which achieved exceptionally strong loan growth of 29 per cent annually in the past four years. For the coming years there is still considerable potential, even if central banks may be expected to take more restrictive measures in response to the strong growth, which has led to current account problems.

BA-CA expects lending volume to grow by some 300 per cent in the next 10 years; new loans would thus total just under EUR 130 billion. This means that banking business in South-East Europe will grow more strongly than in the NMS8, which are also expected to continue to experience substantial growth of about 230 per cent.

1 Albania, Bosnia and Herzegovina, Bulgaria, Croatia, Macedonia, Romania, Serbia and Montenegro
2 NMS8=Estonia, Latvia, Lithuania, Poland, Slovakia, Slovenia, Czech Republic, Hungary
Bulgaria, Croatia, Romania

Enquiries:  Bank Austria Creditanstalt,  International Press Relations
Edith Holzer, tel. +43 (0)50505-57126,   e-mail: edith.holzer@ba-ca.com

This text as well as the study “South-Eastern Europe – On the right track“ and the latest “CEE Report“ are also available at www.ba-ca.com/en/press.html and http://economicresearch-e.ba-ca.com.