WARSAW: The economies on Europe’s southern and eastern flanks are able to grow less than half as fast as they could do before the 2008 financial crisis without overheating, a study by the International Monetary Fund (IMF) showed yesterday.
It put the annual growth potential of the region’s previously fast-expanding economies at 2.3 percent over the next five years, compared to 5.2 percent achieved in 2003-2007 and 1.7 percent between 2008 and 2012.
The IMF has said the decline in potential growth is, in large part, because Western banks which in better times flooded the region with capital are now retreating to nurse their home markets.
In a semi-annual report launched in the Polish capital, the IMF said the countries facing the sharpest declines in potential growth were Ukraine, Latvia, Russia, Slovakia, Bulgaria and Romania. Ukraine’s potential gross domestic product (GDP) growth for 2013-2017 was 1.4 percent, according to the IMF, compared to 6.6 percent in the five years before the global crisis hit.
In Russia, the forecast was 3.1 percent growth in the next five years, against 7.1 percent between 2003 and 2007. Poland, the European Union’s biggest emerging economy, is affected too: the forecast is for 2.5 percent potential output growth in 2013-2017, against 4.4 percent before the crisis.
Turkey and ex-Soviet Moldova had the smallest forecast declines in the region, according to the IMF. Potential GDP is a measure of an economy’s capacity to produce without overheating, as compared with the actual GDP, which measures how much an economy is actually producing.
“It is likely that potential output growth will remain subdued, held back by tight credit supply, low capital flows, tepid growth in trading partners, and demographic pressures,” the IMF said. Its forecast for actual GDP growth in the region was 1.7 percent for 2013, improving to 2.7 percent in 2014.
The IMF report covers central, eastern and southeastern Europe, including Russia, the Balkans, the Baltic states, Turkey, Ukraine, Moldova and Belarus, as well as the EU’s ex-Communist states in eastern Europe.
Reuters
