The economies of Europe and Central Asia (ECA) continue to face difficult headwinds in an increasingly complex and uncertain global economic environment, with short-term prospects differing substantially across countries.
Following a contraction of 1.1 percent in 2015, GDP in Eastern Europe and Central Asia is expected to show practically no growth in 2016, implying a downward adjustment of more than one percentage point since late last year. Especially large are the downward adjustments for the South Caucasus (3.3 percentage points), Central Asia (1.6 percentage points) and Russia (1.3 percentage points).
On the other hand, GDP growth in the European Union and the Western Balkans is expected to average 1.8 percent this year, unchanged from expectations six months ago. In Southern Europe, a recovery is finally taking hold, although growth is still not strong enough to undo damage caused by the Great Recession. In Central Europe, growth is forecast to remain robust.
On the eastern side of the region, oil-exporting countries and countries that depend on remittances from those oil-exporting countries are in recession, or close to recession. A historically slow pace of growth in global trade, low and volatile oil prices, and ongoing geopolitical tensions continue to adversely impact these economies.
While economic growth in the western part of ECA is recovering slowly overall, countries in the European Union face multiple risks. The refugee crisis is severely testing Europe’s ability to effectively coordinate policies, while the possibility of the United Kingdom exiting the European Union (BREXIT) exemplifies political complications in the European integration process.