GDP growth in the Europe and Central Asia region is forecast to moderate to 2.4 percent in 2018, from 2017’s robust 2.8 percent—the strongest since the financial crisis.
All parts of the region are expected to see growth, reflecting ongoing strength in industrial production and exports. Azerbaijan, Russia, Belarus and Ukraine are expected to see a modest acceleration in 2018. These countries were the hardest hit by the oil price fall and are still gaining momentum after sharp recessions in 2015 and 2016.
The region’s export growth continues to be strong, although the appreciation of the euro is expected to slow the acceleration of export volumes seen in 2017.
The stable outlook comes with a normalization of inflation and, in many countries, modest fiscal deficits. While some EU countries still face deflation, average EU inflation was up to 1.5 percent in 2017, and is expected to remain modest in 2018. The average fiscal deficit in 2018 is projected to be 1.1 percent of GDP, down from more than 6 percent in 2009.
Inflation has significantly dropped from double-digit rates seen in Russia and Kazakhstan during 2015-16, after the oil price shock and subsequent devaluations. This reflects the one-time adjustments in relative import prices at the time and not expansionary monetary policy.
Turkey, however, is still likely to see inflation above 10 percent, reflecting monetary tightening that has not kept pace with fiscal expansion and private sector credit growth.
In many countries, unemployment rates have fallen below pre-2008 levels, while labor participation rates are above pre-crisis levels.
Last updated March 30, 2018