WASHINGTON – The World Bank says Eastern Europe and Central Asia are showing signs of rebounding from the economic setbacks they experienced during the global financial and euro-zone crises.
But economists at the World Bank and International Monetary Fund's annual meetings in Washington on October 11 also said the region has had "the slowest recovery of growth" compared to other world regions and remains vulnerable to risks.
Laura Tuck, the World Bank's vice president for the Europe and Central Asia region, said Western Europe's slow emergence from recession has had had a "ripple effect" in Central and Eastern European and Central Asian nations.
The World Bank projects that the region will experience "modest growth rates of 2.2 percent in 2013 and 3.1 percent in 2014."
Tuck also noted that the projected growth rate for countries in the Commonwealth of Independent States (CIS) is 2.4 percent of GDP for 2013 -- despite the Russian economy sagging to a 1.8 percent growth rate.
But she also warned of persistent economic vulnerabilities and new risks.
"So the good news, as I said, is that [Europe's economy] is on the rebound," Tuck said."The bad news is that the financial risks, including from here in the United States, are emerging. After [US Federal Reserve Chairman] Ben Bernanke’s suggestion back in May that there could be a tapering off, capital flows into emerging Europe and Central Asia dried up, yields moved up, stocks fell sharply, and currencies weakened. These affected those [Eastern and Central European and Central Asian] countries with the largest current account deficits that are vulnerable to inflows, including countries in the Western Balkans, Armenia, and Belarus."
Tuck said that the countries of the region must face the "tough reality" that the central problems in their economy are structural in nature and require domestic solutions.
Those include the need to work on creating new jobs, addressing the issue of aging populations, and better managing natural resources.
Time For Reforms
A press release issued by the World Bank highlighted the resource-management challenge for Central Asian states, along with Russia and other former Soviet nations.
"Managing natural resources in a sustainable and responsible way is a challenge that affects resource-rich countries of Eurasia such as Azerbaijan, Kazakhstan, Russia, Turkmenistan, Ukraine, and Uzbekistan," the statement said.
Hans Timmer, the World Bank chief economist for the Europe and Central Asia region, said the countries of emerging Europe and Central Asia "should undertake reforms and policies to improve the environment for existing and new firms to thrive and create jobs, and to support workers to be more adaptable, ready-to-work, and mobile so they can tap into new job opportunities."
For Russia, Tuck said, the challenge is to become more competitive and to spur investment.
"The most important challenge for Russia now is to address noncompetitive structural issues in the economy and to shift from a model that was very much focused on stimulating domestic demand to one that will address the noncompetitive sectors, and, in particular, try to develop more investment in the economy. Because right now it's pretty much growing at capacity and so [there's a need to] lift that capacity constraint," she said.
For long-run success, economists said, all countries in Eastern Europe and Central Asia "will need to build better institutions."