Slow-down in domestic demand

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Macroeconomic overview

Most transition economies – 27 out of 34 – saw lower growth in 2012 than in 2011 (see Chart M.2). This slow-down encompassed all regions, with the exception of the southern and eastern Mediterranean (SEMED) countries, where a slight increase reflected weak growth during the political turmoil of 2011, rather than any significant acceleration. In the majority of countries this decline can be attributed to weaker domestic demand. Consumption stalled across the region and contracted in real terms in the recession-hit economies of Bosnia and Herzegovina, Croatia, FYR Macedonia, Hungary and Slovenia. The end of the credit boom in Turkey triggered a sharp reduction in consumption, which played a significant role in the deceleration of the economy in 2012.

The weakening of investment has also been a major factor in the slow-down (see Chart M.3). In the CEB countries 2012 was the fifth successive year of weak or negative investment growth due to fiscal austerity (which constrains public investment), low foreign direct investment (FDI) and investor uncertainty amid the eurozone crisis. In Russia fixed investment had come to a standstill by the end of 2012. This was due in part to faltering global commodity prices and the ensuing stagnation of export revenues. Weaker domestic demand and supply-side constraints – high capacity utilisation and low unemployment – have resulted in a rapid deceleration of growth. Investment has also been the principal driver behind the slow-down in Ukraine, contracting by over 10 per cent in real terms.

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