Southeast European economies expected to outperform the wider region

Southeast European economies expected to outperform the wider region
wiiw forecasts show several Southeast European economies will perform strongly over the next three years. / wiiw
By bne IntelliNews May 1, 2023

Several Southeast European economies are set to be the strongest performers in the Emerging Europe region in the next three years, the latest Spring Forecast published by the Vienna Institute for International Economic Studies (wiiw) shows. 

EU member Romania and aspiring members Albania and Kosovo in particular will achieve some of the fastest growth across the 23 countries from Central, Southeast and Eastern Europe and Central Asia assessed by wiiw. 

Growth in the three countries will consistently outstrip that in the wider region, and all three will top 4% annual growth in the final year of the forecast period, 2025. 

Romania’s economy is forecast to grow by 3.0% this year, which is more than double the forecast for both the 11 EU members from Central and Southeast Europe, and for the wider region. This will then accelerate sharply to 4.0% in 2024 and 4.3% the following year, making it the fastest-growing economy in the region in 2025. 

Kosovo will achieve the fastest growth this year, of 3.6%, which, like Romania’s, will speed up to 3.9% and 4.1% respectively in the following two years. 

Albania’s growth is projected at 3.3% in 2023, 3.8% in 2024 and 4.0% in 2025. 

Moldova is also heading for a robust recovery after a sharp 5.9% contraction in 2022; its growth is pegged at 3.0% this year and 4.0% in each of the following years. 

This compares with the regional average of just 1.2% this year, 2.3% in 2024 and 2.7% in 2025. Of the other countries in the region only Ukraine assuming the economy starts to recover will achieve faster growth in 2025, though its forecast is subject to considerable uncertainty because of the unpredictable outcome of the war. Kazakhstan, too, is set to be among the fastest growing countries in the region. 

“The real out-performers, the really strong stories are predominately in Southeast Europe, which is certainly not always the case,” commented Richard Grieveson, deputy director of wiiw, during a webinar to present the institute’s spring forecast. 

“That applies to a mix of both the non-EU members like Kosovo, Albania really a growth success story of this downturn and to an extent Montenegro, but also some EU member states, especially Croatia and Romania.” 

The latter, according to Grieveson, have been “very successful so far in taking advantage of what’s on offer from the EU side” both from the regular EU budget and from the Recovery and Resilience Facility (RRF). 

“I remember in 2020-21 saying the Next Generation EU is a potential game changer for Southeast Europe. There are these huge allocations for countries like Romania, Croatia and Bulgaria, but we had doubts about whether they can really absorb it, do they have the institutional capacity to do it? It seems that the answer is yes, they do,” he added. 

“Especially Croatia and Romania, but also Slovakia and Bulgaria, have already drawn down at least a couple of percentage points of GDP from the RRF funds on top of the existing EU budget. This, of course, is a very significant counter-cyclical shock absorber in this very severe economic shock the region is facing.”

While countries in the region have struggled to meet some of the criteria to utilise the funds, there have been no political disputes comparable to those between Poland and Hungary on the one hand and the European Commission on the other. 

“We can say about all these relative success stories is that all of them in different ways have got at least some of the policy right,” commented Grieveson. “All countries are facing big challenges, but the policy decisions have mattered and those that have made better policy decisions have come relatively better through the downturn so far.”