WIIW posts 2009-2011 economic outlook for Central and SE Europe

TIRANA, March 31؁ccording to the latest economic outlook report from the Vienna Institute for International Economic Studies (WIIW) for Central and South Eastern Europe the previous economic model based on external financial inflows has come to an end. Future growth will have to rely on domestic savings to a large extent. The emergence of domestic investment-led growth is quite a slow process which will result in slow middle-term growth performances, states the report of G⣯r Hunya, a senior economic researcher at WIIW.
“Economies are on the way to adapting to the new conditions by either devaluing their currencies and/or curtailing the level of economic activities. Future growth will have to rely on domestic savings to a large extent.”
The report identified key economic elements in the said region that need to be improved in order for countries in Central and South Eastern Europe to cope with the crisis and possibly bounce back. Countries need to address huge foreign debts, boost economic productivity in order to cope with decreasing imports, improve fiscal deficits, and attract FDI.
Regarding 2009, the prospects of economic growth are grim and the whole region will suffer an economic slow down all the way to economic shrinkage. Indeed, only three countries, including Albania will experience a positive GDP rate, while the rest will experience economic stagnation or recession.
Albania’s economic prospects fair nicely when compared to the Western Balkan and Central and South Eastern Europe in general. Despite economic slow down, the reports forecasts GDP growth of 3 percent reflecting forecasts from Bank of Albania, World Bank, IMF. The growth rate puts the country way ahead of the rest of the region thanks to sound fiscal and monetary policies.
BoA reported earlier this week a dramatic increase in Albania’s current account by 55 percent. Such statistics constitute a major economic risk in the wake of declining revenues due to recession.
“A crucial aspect which determines prospects is the countries’ default risk, i.e. the international financial markets’ assessment of their vulnerability. Most countries in the region have been quite successful in reducing their fiscal deficits below 3 percent of GDP except in Romania, Albania and Hungary. Fiscal deficits to the GDP may increase again due to declining public revenues in the wake of the current recession, even if countries abstain from costly anti-crisis programmes. If conditions for financing deficits deteriorate even further, countries may need to cut expenditures which will aggravate the implications of the crisis,” states the study.