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World Bank Survey of Businesses in Eastern Europe Suggests Long-Lasting Effects of the Financial Crisis on Growth

December 16, 2009

Washington, D.C., December 16, 2009 — New cross-country data from business surveys in Eastern Europe, released by the World Bank today, reveal for the first time the scale of the demand crisis that hit the region this year and how firms have responded so far. The data show a varied impact across different types of firms. These differences could have significant implications for the economic recovery of Eastern Europe and Central Asia, the region most affected by the global financial crisis.

The survey, conducted by the World Bank’s Enterprise Survey team, collected data from 1,686 businesses in six Eastern European countries—Bulgaria, Hungary, Latvia, Lithuania, Romania, and Turkey—during June and July 2009. According to the data, more than 70 percent of firms identified a drop in demand as the most important effect of the crisis—even more so than the credit crunch experienced so far.

The survey found that young, innovative enterprises and companies employing a large share of qualified workers experienced severe declines in sales. "Young and innovative firms were thought to be better equipped to withstand the crisis and lead future growth," said Paulo Correa, Senior Economist, Private and Financial Sector Development, Europe and Central Asia, World Bank. "The disproportionately severe impact of the crisis on these firms raises questions about the pace of recovery of the six economies," he added.

Yet a significant number of enterprises, including domestic-oriented firms and firms in non-tradable sectors, have actually grown—indicating that the global downturn may be causing structural changes in the economy. Firms responded to the crisis by relying more on internal funds to finance working capital, delaying payments to tax authorities or suppliers, and attempting to restructure their debt. The majority of firms expected sales to fall no further, and layoffs to continue between August and December 2009.

“Data from the next two rounds of data collection will shed more light on how quickly countries in the region will recover. The next rounds of data collection will take place in January and June 2010,” said Jorge Luis Rodríguez-Meza, Program Coordinator, Financial and Private Sector Development, World Bank Group. “These rounds will be used to monitor the impact of the crisis and the pace of recovery over time,” he added.

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