IDEAS home Printed from https://ideas.repec.org/p/wii/fpaper/fcspring2018.html
   My bibliography  Save this paper

Riding the Global Growth Wave

Author

Listed:
  • Vasily Astrov

    () (The Vienna Institute for International Economic Studies, wiiw)

  • Rumen Dobrinsky

    () (The Vienna Institute for International Economic Studies, wiiw)

  • Vladimir Gligorov

    () (The Vienna Institute for International Economic Studies, wiiw)

  • Richard Grieveson

    () (The Vienna Institute for International Economic Studies, wiiw)

  • Doris Hanzl-Weiss

    () (The Vienna Institute for International Economic Studies, wiiw)

  • Peter Havlik

    () (The Vienna Institute for International Economic Studies, wiiw)

  • Gabor Hunya

    () (The Vienna Institute for International Economic Studies, wiiw)

  • Sebastian Leitner

    () (The Vienna Institute for International Economic Studies, wiiw)

  • Isilda Mara

    () (The Vienna Institute for International Economic Studies, wiiw)

  • Olga Pindyuk

    () (The Vienna Institute for International Economic Studies, wiiw)

  • Leon Podkaminer

    () (The Vienna Institute for International Economic Studies, wiiw)

  • Sandor Richter

    () (The Vienna Institute for International Economic Studies, wiiw)

  • Robert Stehrer

    () (The Vienna Institute for International Economic Studies, wiiw)

  • Roman Stöllinger

    () (The Vienna Institute for International Economic Studies, wiiw)

  • Hermine Vidovic

    () (The Vienna Institute for International Economic Studies, wiiw)

Abstract

Aggregate real GDP growth in CESEE is at its strongest level for six years, and in 2017 all economies in the region expanded for the first time in a decade. External conditions are highly supportive of growth in CESEE. All the big engines of the global economy – the US, China and the eurozone – are expanding strongly together for the first time since 2010. The coordinated global upswing has further to run, and we expect CESEE economies to continue to benefit in the coming years. EU-CEE and Turkey will grow strongly during our forecast period, while activity in the Western Balkans will pick up from recent years. The CIS and Ukraine will remain the regional laggards, but will continue to recover slowly. We do not think that any economy in the region is ‘overheating’, although there are growing risks in Romania and Turkey. We expect inflation to remain very subdued in most of CESEE during the forecast period. In parts of CESEE, large-scale Ukrainian migration is helping to relieve labour market tightness. Wage increases in most of CESEE have been strong, but are concentrated largely in the manufacturing sector, and have been more than offset by rising labour productivity and non-price competitiveness. External competitiveness is not in danger. Across the region, investment will rise faster than headline real GDP growth in 2018-2020, driven by low interest rates, high capacity utilisation, stronger confidence, EU funds and still low base effects. Most countries have seen their export/GDP shares rise in the past decade, which increases their ability to take advantage of the current upswing. Many are moving up the value chain. Banking sectors in CESEE are generally on a much stronger footing than a few years ago. However, the old pre-crisis, highly leveraged model reliant on foreign inflows is mostly a thing of the past, meaning that credit growth will be relatively low by historical standards in the coming years. Downside risks to regional growth emanating from local and global factors are significant. In particular, we are worried about a trade war, the exit of major central banks from extraordinarily loose monetary policy, pockets of high corporate and government leverage, east/west EU splits, the undermining of institutional independence in some countries, geopolitical tensions, the Ukraine crisis, and potential spill-overs from a renewed outbreak of volatility in the eurozone, or a Chinese debt crisis. Convergence with Western European income levels will proceed in the long term. However, there is a risk that specialisation in parts of the supply chain where little value is created will condemn the region to a permanent ‘semi-periphery trap’.

Suggested Citation

  • Vasily Astrov & Rumen Dobrinsky & Vladimir Gligorov & Richard Grieveson & Doris Hanzl-Weiss & Peter Havlik & Gabor Hunya & Sebastian Leitner & Isilda Mara & Olga Pindyuk & Leon Podkaminer & Sandor Ric, 2018. "Riding the Global Growth Wave," wiiw Forecast Reports Spring2018, The Vienna Institute for International Economic Studies, wiiw.
  • Handle: RePEc:wii:fpaper:fc:spring2018
    as

    Download full text from publisher

    File URL: https://wiiw.ac.at/riding-the-global-growth-wave-dlp-4417.pdf
    Download Restriction: no

    More about this item

    Keywords

    CESEE; economic forecast; Europe; Central and Eastern Europe; Southeast Europe; Western Balkans; new EU Member States; CIS; Russia; Ukraine; Poland; Romania; Czech Republic; Hungary; Turkey; convergence; overheating; external risks; EU funds; investment; exports; tourism; unemployment; employment; wage growth; unit labour costs; migration; inflation; competitiveness; external debt; public debt; semi-periphery trap; demographics;

    JEL classification:

    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • O52 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Europe
    • O57 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Comparative Studies of Countries
    • P24 - Economic Systems - - Socialist Systems and Transition Economies - - - National Income, Product, and Expenditure; Money; Inflation
    • P27 - Economic Systems - - Socialist Systems and Transition Economies - - - Performance and Prospects
    • P33 - Economic Systems - - Socialist Institutions and Their Transitions - - - International Trade, Finance, Investment, Relations, and Aid
    • P52 - Economic Systems - - Comparative Economic Systems - - - Comparative Studies of Particular Economies

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wii:fpaper:fc:spring2018. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Customer service). General contact details of provider: http://edirc.repec.org/data/wiiwwat.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.