GDP growth in the Europe and Central Asia region is forecast to moderate to 2.3% in 2018, following 2017’s robust growth. The 2017 rates of growth of GDP (2.7 percent) and private consumption (2.5 percent) were faster than at any time since the global financial crisis of a decade ago. Growth was especially strong in Central Europe and in Turkey, but it was robust in other parts of the region as well.
Unemployment rates are now close to their 2007 levels in most countries, and average inflation exceeds 2 percent, indicating that little spare capacity is left. Deceleration of growth is expected to be modest, but a sharper correction remains possible.
There is little room for further monetary stimulus if the expected slowdown is sharper than expected. The region has rebuilt some fiscal buffers, however. The average fiscal deficit in 2017 is estimated at just above 1 percent of GDP, down from 6 percent during the 2009 crisis and close to levels at the end of the boom that preceded that crisis.
Fiscal stimulus is thus an option in several countries in case of a sharper than expected slowdown. Under the baseline scenario of only a modest deceleration, however, a further buildup of fiscal buffers seems the best strategy.
Last updated May, 2018