Jul 29, 2013

    Emerging Europe looks set to grow

    EMERGING Europe might be breaking free of a deep five-year setback sparked by the financial crisis and even be on the verge of a new growth curve, experts said.

    International Monetary Fund chief Christine Lagarde said that "the worst is most likely behind" the region, after it clocked positive first-quarter growth.

    London-based analysts at Capital Economics said last Friday: "Evidence of a possible turnaround is strongest in emerging Europe, and weakest in emerging Asia."

    Long a crossroads between East and West, emerging Europe comprises advanced former communist countries in the European Union and the euro zone.

    It also includes Turkey, which exports heavily to the euro zone, as well as the less-developed Balkan countries, Russia and some Commonwealth of Independent States.

    The population tallies around 400 million, compared to the EU's near 500 million.

    In many of these countries, growth is expected to pick up steam provided the euro zone pulls ahead without setbacks in the next 18 months, economists said this week.

    Mr William Jackson, from Capital Economics, said: "From 2015 onwards, we think the region as a whole could grow by 3 per cent to 4 per cent a year."

    He believes that eastern European economies are "more competitive" than crisis-hit countries on the euro zone's southern periphery.

    That view was echoed by analysts at the Washington-based IHS who forecast a 22.4 per cent expansion across the region over six years this year to 2018, compared to 6.3 per cent in the euro zone.

    Having built up free markets on the ruins of the communist-command economy it shed two decades ago, the region is still slowly catching up with western Europe and has a lot going for it.

    Mr Jackson said: "Low public debt, its position as a manufacturing hub closely integrated with Western Europe and low incomes...mean it has plenty of scope for 'catch-up' growth."

    These qualities have not been lost on China, which sees the region as a way into the EU.

    Although Chinese investment is still low, a promise by former premier Wen Jiabao in April last year of US$10.5 billion (S$13 billion) in credit lines has triggered "discussion on investment agreements with several countries in the region", IHS economist Charles Movit said.

    China could bring in components for assembly and use the region as a "back door into the EU...especially in the automotive area", he said.