Coun­try pro­files

Top 100 See - - Contents - By Daniel Solomon, econ­o­mist at Euromon­i­tor In­ter­na­tional

Economies in South­east Europe (SEE) now ap­pear to be solidly in re­cov­ery mode, af­ter hav­ing one of the weak­est per­for­mances in the last 5 years. The out­look has gen­er­ally im­proved in the first half of 2015 and gross do­mes­tic prod­uct (GDP) growth fore­casts for the full year 2015 have been re­vised up­wards by around 0.3-0.5 per­cent­age points since the be­gin­ning of the year. Eco­nomic growth should con­tinue to im­prove in 2016-2020 but it should re­main be­low the long-term po­ten­tial out­put growth with the ex­cep­tion of Ro­ma­nia.

The com­bi­na­tion of higher pri­vate sec­tor con­fi­dence, lower in­ter­est rates and im­proved labour mar­ket con­di­tions have boosted consumer spend­ing and in­vest­ment. Consumer con­fi­dence has in­creased sig­nif­i­cantly dur­ing 2015 in SEE, and it is now above the long-term av­er­ages in most SEE coun­tries, es­pe­cially in Ro­ma­nia and Slove­nia. Busi­ness con­fi­dence has also in­creased, though it is still barely above the long-term trends in Bulgaria and Ro­ma­nia. In­ter­est rates in the re­gion have mostly fol­lowed euro­zone in­ter­est rates. They reached record lows in early 2015, but have in­creased re­cently along as in­vestors seem to have re-eval­u­ated the im­pact of the Euro­pean Cen­tral Bank‘s quan­ti­ta­tive eas­ing pro­gramme on bond yields.

Ex­ter­nal fac­tors af­fect­ing the out­look

Ac­cord­ing to Euromon­i­tor sce­nario, SEE coun- tries should ben­e­fit sig­nif­i­cantly from lower oil prices. A fore­cast as­sum­ing long term sta­bil­i­sa­tion of oil prices at around $60 would still raise GDP lev­els in the re­gion by 1-2% rel­a­tive to $100 oil price sce­nario.

A wors­en­ing in Russia‘s re­ces­sion could hurt the out­look mod­er­ately. Based on our macro model, a 3% GDP drop in Russia in 2016 (rel­a­tive to our cur­rent fore­cast of -0.8% growth) would re­duce GDP by around 0.4% in Bulgaria and Ser­bia and by 0.1% in Ro­ma­nia.

Greece‘s exit from the euro­zone (Grexit) re­mains a high prob­a­bil­ity sce­nario in 2016, de­spite the re­cent 3rd bailout agree­ment. The spill-over ef­fects of a Grexit on Europe should be quite lim­ited, due to the low ex­po­sure of the Euro­pean fi­nan­cial sys­tem to Greek debt and the im­proved cap­i­tal buf­fers of banks.

How­ever, the ef­fects would be more sig­nif­i­cant in SEE due to stronger trade links and the im­por­tance of Greek owned banks in the fi­nan­cial sys­tems of Bulgaria, Ro­ma­nia and Ser­bia. We es­ti­mate that a Grexit in 2016, could re­duce out­put in 2016-2017 by 1% in Bulgaria and by 0.3% in Ro­ma­nia.

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