Europe and Central Asia

Abstract

The rapid GDP growth in Europe and Central Asia of the past 20 years, which largely reflected the enormous reform efforts undertaken by countries in the region (including those associated with accession to the European Union), eased in 2008 and is expected to give way to a sharp slowdown in 2009. The global financial crisis is expected to cut heavily into capital inflows and investment in the region. Moreover, a number of countries are particularly vulnerable because of high current account deficits that in many instances have been reliant on short-term capital inflows for their financing. Regional GDP growth fell almost 2 percentage points to 5.3% in 2008, moderating from 7.1% in 2007, tied largely to a sharp falloff in growth during the second half of the year. Slowing demand in the Euro Area dampened export performance, while overheating in several countries required a mix of fiscal and monetary tightening to stem inflationary pressures.