The Post Recession Growth Prospects of South East European Economies

Abstract

AbstractThis paper starts with a discussion of how the world recession as an external shock influenced the already vulnerable South East European (SEE) economies. All countries except Albania and Kosovo experienced a recession as well as a termination of the foreign debt based heating-up that generated high growth rates after 2000. The paper provides an overview of states' policy responses, with individual countries surveyed in the appendix. We argue that, with the exception of Albania, all SEE economies started with a fiscal expansion, which coincided with elections in which the existing governments were not re-elected. This was followed by public finance crises, fiscal consolidation and more active monetary policy which averted a financial crisis, with only three of these economies turning to the IMF for help. Nevertheless, the cumulative effect was an extended trough. The paper then discusses the recession's impact on growth in terms of three growth projections derived from historical experience and two ad hoc benchmarks. We examine the consequences of returning to a lower post recession growth trajectory and calculate the time required to return to secular growth and achieve chosen benchmarks. The conclusion for both is that convergence time varies from less than a decade to no convergence before 2040, with the exception of Albania.