Restarting growth in Europe after the Great Recession: CEE versus other countries
Seppo Honkapohja and Iikka Korhonen
Our objective is to provide an overview of key issues related to economic growth in Central and Eastern European (CEE) countries following the recent economic downturn. The discussion mainly relies on comparisons with European Union (EU) and euro area countries, sometimes also at a more disaggregated level. We thus assume the perspective of comparative macroeconomics.
We first look back in time and consider the question of convergence in living standards. In particular, did EU membership facilitate convergence by speeding up economic growth in the CEE countries? Are per capita gross domestic product (GDP) levels converging to the EU average, in line with the convergence hypothesis? The broad and quick answer to both questions is yes.
Next we look at other variables. One set of issues and variables concerns the behaviour and measurement of macroeconomic balances; these will enable us to check on whether the convergence process is sustainable. In other words, have there been major imbalances in the economic developments? The current account and public sector balances in the CEE countries are commonly applied metrics of macroeconomic balance. We also look at private sector indebtedness.
Another variable of interest is unemployment, since it is an indicator of the degree of balance in the labour markets and success in structural adjustment. A related issue is the extent of labour and product market regulation.
Secondly, we consider the impact of the financial crisis which emerged in 2008 on growth performance in the CEE countries. The CEE countries were of course hit by the global financial crisis and the ensuing Great Recession. How deep was the resulting decline in GDP? How well did the
CEE countries adjust to the recession, as compared to other EU and euro area countries? What accounts for the differences in adjustment within the group of CEE countries?
Thirdly, we look at the most recent years, that is to say the period since 2009. How successfully did the CEE countries come out of the recession, and were they able to resume economic growth? Because the CEE countries are open economies, their future performance is critically dependent on their success in external trade. In the last part of the chapter we also consider the performance of the CEE countries in terms of recent export dynamics.