Transition Report 2013 Stuck in transition?

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Facts at a glance

IN 27 countries out of 34 in the transition region GDP growth slowed in 2012.

ABOVE 20% Remittances as a share of GDP in Tajikistan, Kyrgyz Republic, and Moldova.

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ABOVE 50% Youth unemployment rates in parts of south-eastern Europe.

ABOVE 15% Loss of foreign bank funding as a share of GDP in countries most affected by deleveraging since the third quarter of 2011.

Macroeconomic overview

Slow-down in domestic demand

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.

Chart M.2

Source: International Monetary Fund World Economic Outlook (IMF WEO) database.
Note: The chart plots annual growth rates of real GDP in the years 2011 and 2012. Countries below the 45-degree line experienced a slow-down 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.

Chart M.3

Source: IMF WEO database.
Note: The chart shows changes in annual GDP growth rates from 2011 to 2012. Contributions are calculated as changes in the various components' growth rates weighted by their respective shares in 2011 GDP.