May 11, 2018//-South-Eastern Europe’s (SEE) economy is expected to have grown 4.7% in first quarter (Q1) of 2018, down from Q4’s impressive 5.8% expansion in 2017, which had marked the second fastest rate in nearly a decade.
While, the regional economy is expected to expand 3.5% in 2019. The upgrade to the regional GDP forecast reflects faster expected growth in Turkey this year, following the recent announcement of further government stimulus measures.
FocusEconomics FocusEconomics, a leading provider of economic analysis and forecasts for 127 countries in Africa, Asia, Europe and the Americas which made this disclosure in its May 2018 estimate.
Although hard GDP data is still outstanding for virtually all the countries in the region, a loss of momentum in Turkey likely drove the slowdown, according to the report.
It noted: ” The Turkish economy appears to have lost steam on tighter credit conditions—as Turkish banks were unable to maintain last year’s blistering pace of credit growth—and elevated inflation dampening purchasing power”.
This comes after fiscal stimulus caused growth to come in markedly above potential last year. However, the regional giant’s pace of growth remained robust, with business confidence still firmly in positive territory throughout the quarter and industrial production solid in January and February.
A similar picture likely prevailed in Romania, the region’s second largest economy, where there are also signs pointing to a loss of momentum in Q1. The government’s loose fiscal stance has caused inflation to spike so far this year, eating into wage growth and taking the shine off private consumption; retail sales growth dimmed notably in the first three months of 2018,
In addition, ongoing political uncertainty is making investors wary. In early May, the president refused to sign the government’s controversial legal reform package, instead referring the bill to the constitutional court.
The EU has raised concerns that were the law to pass it could reduce the independence of the judiciary and hamper anticorruption efforts, economists at FocusEconomics said.
Furthermore, the administration’s insistent criticism of the Central Bank’s tighter monetary stance raises concerns about the Bank’s future independence.
In contrast, Serbia’s economy gained significant momentum in Q1 according to a recent flash estimate, with growth of 4.5% year-on-year.
The performance was likely aided by the National Bank of Serbia’s markedly looser monetary stance and solid external demand.
Meanwhile, Croatia likely had an improved quarter on stronger tourist arrivals and robust domestic demand.
Furthermore, the restructuring process of conglomerate Agrokor made headway: On 10 April, the company announced it had agreed on a framework for the settlement process with creditors.
Greece’s economy also seems to have strengthened, with purchasing managers index (PMI) readings averaging higher in Q1, and double-digit export growth in January and February.
In the political arena, Turkish President Recep Tayyip Erdogan’s decision to call snap presidential and parliamentary elections for 24 June has captured headlines.
Although earlier than most analysts had expected, the move to bring elections forward from next year was widely anticipated, particularly given rising concerns over the potential negative impact on the economy of sustaining such vigorous fiscal stimulus until 2019—when elections were originally scheduled.
Despite being the clear favorite to emerge victorious, Erdogan is taking no chances and aims to keep the economy running at full tilt in the run up; the government recently announced two stimulus packages worth nearly USD 40 billion to boost investment and private consumption.
OUTLOOK | Regional GDP forecast revised up
The regional economy should expand a robust 3.9% this year, up from last month’s 3.7% growth projection, the report indicated.
However, this would still be well below the 5.8% expansion recorded in 2017, largely because growth in Turkey and Romania is set to slow from unsustainably high levels as the impact of expansionary fiscal policy gradually fades and higher inflation hurts purchasing power.
On the other hand, the Greek economy should continue to gain momentum this year. Elsewhere in the region, stronger absorption of EU funds across the Balkans, resilient global demand and improving tourist arrival numbers should prevent a harder landing in economic activity.
The economies of Bosnia and Herzegovina, Cyprus and Romania also had their projections upgraded this month. In contrast, Croatia, Greece, Kosovo and Serbia saw their forecasts cut, while the region’s remaining economies saw their forecasts unchanged.
The economies of regional heavyweights Romania and Turkey are expected to grow at the fastest rates in the region this year, with expansions of 4.6% and 4.4%, respectively. At the other end of the spectrum, Greece is projected to record the weakest expansion in the region, at 1.9% growth.
African Eye Report
