Europe and Central Asia Economic Update

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The Europe and Central Asia Economic Update is a product of the Office of the Chief Economist, the Europe and Central Asia Region, prepared in collaboration with the Poverty and Macro and Fiscal Management Global Practices. This semiannual report examines the macroeconomic challenges for the Europe and Central Asia Region.

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  • Publication
    Europe and Central Asia Economic Update, Fall 2023: Sluggish Growth, Rising Risks
    (Washington, DC: World Bank, 2023-10-05) Kasyanenko, Sergiy; Izvorski, Ivailo; Singer, Dorothe
    Europe and Central Asia continues to be negatively impacted by the Russian Federation’s invasion of Ukraine, tighter global financial conditions, persistent inflation, and global economic fragmentation. Economic growth in the region is projected to remain weak relative to the long-term trend, delaying the convergence of living standards to those of high-income countries. The impacts of climate change are becoming a serious constraint on growth, as extreme weather events are affecting the region with increased frequency and severity. Economic growth for the emerging market and developing economies of the Europe and Central Asia region has been revised up to 2.4 percent for 2023. The pickup in growth reflects improved forecasts for Ukraine, Central Asia, Türkiye and Russia. Downside risks cloud the outlook. High inflation may persist amid heightened volatility in global commodity markets and a surge in energy prices. Global financial conditions may tighten further. And global growth, already the weakest on record for any five-year period since 1990, may slow further.
  • Publication
    Europe and Central Asia Economic Update, Spring 2023: Weak Growth, High Inflation, and a Cost-of-Living Crisis
    (Washington, DC : World Bank, 2023-04-06) Roseman Norfleet, Julia Renee; Izvorski, Ivailo; Lokshin, Michael M.; Singer, Dorothe; Torre, Iván
    Economic growth slowed sharply last year in Europe and Central Asia, as Russia's invasion of Ukraine, a surge in inflation, and the sharp tightening of monetary policy and financing conditions hit private consumption, investment, and trade. The marked increase in food and energy prices boosted inflation to a pace not seen in 20 years. The burden of inflation was spread unevenly across households. The poorest households faced inflation that was more than 2 percentage points higher than the inflation faced by the richest households, with this difference exceeding 5 percentage points in some countries. Poverty and inequality rates derived from household-specific inflation rates differ from those based on the standard consumer price index (CPI) approach. These differences have important policy implications, because many programs use CPI–based inflation adjustments, which do not accurately capture changes in the cost of living of targeted populations. Output growth in the region is projected to remain little changed in 2023 but better than projected in January 2023, largely reflecting upgrades to the pace of expansion in Poland, Russia, and Türkiye.
  • Publication
    Europe and Central Asia Economic Update, Fall 2022: Social Protection for Recovery
    (Washington, DC : World Bank, 2022-10-04) World Bank
    Globalization, demographic trends, the green transition, and technological innovations are transforming labor markets in Europe and Central Asia, altering their institutional and contractual arrangements, and creating disparities and vulnerabilities in the labor force. Systemic risks—economic, health, or climate-related—are also playing an increased role in driving poverty and vulnerability. Social protection systems in Europe and Central Asia will need to be reformed to address these challenges and provide adequate protection to workers and families. Countries in the region responded to the COVID-19 pandemic by implementing social protection packages with a substantial contribution of job protection policies. Analysis of the impact of these policies suggests that while job protection policies may have preserved employment in the short run, this may have come at the expense of efficiency and growth. In the long run, income protection policies may be better at addressing the needs of vulnerable groups as labor markets continue evolving. A policy package that combines a guaranteed minimum income with labor market policies that facilitate job transitions can best help countries address long-term challenges.
  • Publication
    Europe and Central Asia Economic Update, Spring 2022: War in the Region
    (Washington, DC: World Bank, 2022-04-10) World Bank
    In February 2022, the world was shocked by the Russian Federation’s invasion of Ukraine. The war is having a devastating impact on human life and causing economic destruction in both countries, and will lead to significant economic losses in the Europe and Central Asia (ECA) region and the rest of the world. It comes at a particularly vulnerable time for ECA as its economic recovery was expected to be held back by scarring from the pandemic and lingering structural weaknesses. The economic impact of the conflict has reverberated through multiple channels, including commodity and financial markets, trade and migration links, and the damaging impact on confidence. Moreover, the war has added to mounting concerns about a sharp global slowdown, surging inflation and debt, and a spike in poverty levels. Neighboring ECA countries are likely to suffer considerable economic damage because of their strong trade, financial, and migration links with Russia and Ukraine. The war is also causing a destabilizing wave of refugees, financial stresses in vulnerable countries, runaway inflation expectations, and food insecurity. A protracted conflict could further heighten policy uncertainty and fragment critical trade and investment networks.
  • Publication
    Europe and Central Asia Economic Update, Fall 2021: Competition and Firm Recovery Post-COVID-19
    (Washington, DC: World Bank, 2021-10-05) World Bank
    Although global economic activity is recovering and output in Europe and Central Asia (ECA) is expected to grow in 2021, containing COVID-19 remains a challenge in the region. Enterprise survey data for the emerging and developing countries in the region show that COVID-19 had a profound and heterogeneous impact on firms. Smaller, younger, and female-run businesses were hit harder and had greater difficulty recovering. But the crisis also played a cleansing role and economic activity in ECA appears to have been reallocated toward more productive firms during the crisis, particularly in countries with more competitive markets. Firms with high pre-crisis labor productivity experienced significantly smaller drops in sales and employment than firms with low pre-crisis labor productivity and were also more likely to adapt to the crisis by increasing online activity and remote work. Many governments in ECA implemented broad policy support schemes to address the initial economic fallout from the crisis. Overall, this government support was more likely to go to less productive and larger firms, regardless of the level of their pre-crisis innovation. As economies enter the economic recovery phase, it will be important for policy makers in all countries to phase out broad policy support measures as soon as appropriate and focus on fostering a competitive business environment, which is key to a strong recovery, resilience to future crises, and sustainable, long-term economic growth.
  • Publication
    Europe and Central Asia Economic Update, Spring 2021: Data, Digitalization, and Governance
    (Washington, DC: World Bank, 2021-03-30) World Bank
    Governments play a critical role in the economies of Europe and Central Asia, where government expenditures are close to 40 percent of gross domestic product and the public sector accounts for nearly 27 percent of total employment, which is almost twice the global average. The public sector often attracts some of the best educated workers in the region. And support for a larger public sector is increasing due to aging populations and their growing health care and long-term care needs, rising inequality and greater support for redistribution, and increasing expenditures as governments address the challenges posed by the COVID-19 crisis. The significant role that government plays underscores the importance of the quality of governance in determining productivity and growth and effectively responding to the region’s economic and social challenges. Digital technology and the data revolution offer the potential to increase efficiency, transparency, responsiveness, and citizen trust, directly impacting the quality of government. Across the world, the quality of government is increasingly informed by the extent to which governments harness digital tools and GovTech to optimize management, service delivery, and overall state capacity. Technology and data are also key for fostering collaboration between governments and civil society to improve public sector efficiency and service delivery. The COVID-19 pandemic has highlighted the costs associated with delaying digitalization and GovTech implementation and the opportunities that lie in public sector modernization.
  • Publication
    Europe and Central Asia Economic Update, Fall 2020: COVID-19 and Human Capital
    (Washington, DC: World Bank, 2020-10-07) World Bank
    The COVID-19 pandemic has hit human capital directly in Europe and Central Asia, adversely affecting both education and health. School closures may lead to learning losses equivalent to a third to a full year of schooling, and they are likely to exacerbate inequalities, by disproportionately affecting students from disadvantaged backgrounds. The disease has already killed thousands of people, and some patients who survive will suffer long-term damage to their health. Recovery from the pandemic will thus require strong investment in education and health. This update examines human capital outcomes in the region and the ways in which the pandemic is likely to affect them. A focus on the quality of tertiary education and health risk factors of obesity, smoking, and heavy drinking highlights the challenges that are particularly important for the region. Post-COVID 19 policy initiatives to improve education and health will need to recognize the challenges posed by increased reliance on remote learning and the importance of being prepared for future pandemics, given the vulnerability of the region’s aging societies and the large number of people with underlying health risks.
  • Publication
    Europe and Central Asia Economic Update, Spring 2020: Fighting COVID-19
    (Washington, DC: World Bank, 2020-04-09) World Bank
    In February 2020, the coronavirus outbreak interrupted the recovery that was underway in the Europe and Central Asia region earlier in the year. Given the rapidly evolving situation, this update summarizes the recent developments and growth outlook for the region under different scenarios regarding the outbreak. Although the magnitudes are uncertain, the pandemic is likely to derail the near-term outlook by interrupting daily activity, putting further downward pressure on commodity prices, disrupting tightly linked global and regional supply chains, reducing travel and tourist arrivals, and decreasing demand for exports from economies in the region. There are trade-offs between the health benefits of policies to slow down the spread of the disease and the economic costs of these actions. During these difficult times, it is important for policy makers to act decisively to save lives and invest in their public health systems; but also minimize the economic cost by strengthening the safety net for the most vulnerable; supporting the private sector through short-term credit, tax breaks, or subsidies; and being prepared to lower interest rates and inject liquidity to restore financial stability and boost confidence.
  • Publication
    Europe and Central Asia Economic Update, Fall 2019: Migration and Brain Drain
    (Washington, DC: World Bank, 2019-10-09) World Bank
    The share of immigrants in Western and Eastern Europe has increased rapidly over the past four decades. Today, one of every three immigrants in the world goes to Europe. Furthermore, although globally only one-third of migration takes place within regions, intraregional migration is especially high within Europe and Central Asia, with 80 percent of the region's emigrants choosing to move to other countries in the region. In high-income destination countries, migrants are often blamed for high unemployment and declining social services. There are also widespread concerns about brain drain in the migrant sending countries of Eastern Europe, the Western Balkans, and Central Asia. This update focuses on the design of policies on labor mobility and presents the trends, determinants, and impacts of low- and high-skilled labor.
  • Publication
    Europe and Central Asia Economic Update, Spring 2019: Financial Inclusion
    (Washington, DC: World Bank, 2019-04-05) World Bank
    Financial services can help drive development by facilitating people’s investments in their health, education, and businesses, and making it easier for people to manage emergencies. There is great variation in financial inclusion in the Europe and Central Asia region. Some countries have seen significant growth in account ownership, despite starting from a low base. These experiences underline the potential role of digital payments in driving financial inclusion. But nearly 30 percent of unbanked adults report trust in banks as a barrier, which is nearly double the developing country average. And in some countries, gender gaps in account ownership remain significant. Given the heterogeneity of experiences, there are ample opportunities for countries in the region to learn from each other and contribute to the rich research and operational agenda going forward.