Page 40 - Central & Southeast Outlook 2020

will see stronger growth in the euro area from H2 2020, supporting CE/SEE,” Raiffeisen analysts wrote.
And while export-led growth has faltered recently, similar to Central Europe the more prosperous economies of Southeast Europe have seen a steady rise in incomes and a consequent explosion of consumption led growth that has helped keep their economies growing quickly even in the face of the global slowdown.
But this is not sustainable in the Western Balkans, where the World Bank points out that, “Consumption growth has been fueled by higher public spending and near double-digit growth in household lending, raising questions on the sustainability of the consumption-driven growth in the region.” And the region has failed so far to raise its competitiveness which, the development bank warns, “weighs on opportunities for its small open economies to access larger markets”.
There are similar worries in the region’s largest economy Romania. Having achieved stunning growth of over 7% y/y back in 2017, the Romanian economy is forecast to grow at a little over 3% in 2020.
Romania has been through a tumultuous few years for investors with frequent changes of government and policy reversals. The newly appointed centre-right government under Prime Minister Ludovic Orban is aiming to row back on some of he most unpopular policies of its predecessors — but at the head of a government backed by a diverse group of parties and individuals, and heading into an election year he is unable to reverse plans for costly pension increases.
This will only add to the concerns about Romania’s twin deficits, fuelled by previous governments’ pro-cyclical stimulus measures. Rising domestic demand has caused imports to soar, pushing up the trade deficit, while the 2020 draft budget envisages a 3.6%-of-GDP deficit, which analysts see as optimistic.
Political uncertainty is also downside risk for other economies in the region. Kosovo has yet to form a government after the 2019 general election. Slovenia’s five-party coalition government is looking shaky after The Left (Levica) withdrew its support.
On the other hand, Bosnia & Herzegovina has just got a new prime minister after more than a year of negotiations, which should make it possible to restart the reform process and secure a new deal with the IMF. After a turbulent year in Moldova, President Igor Dodon has seen off his rivals and is heading into the new decade firmly in control of the small country’s future.
2020 is also an election year for Serbia but with the Serbian Progressive Party’s (SNS’) firm hold on power, this will serve more to
40​ CESE Outlook 2020​ ​ ​www.intellinews.com