South-Eastern Europe: impacts from the crisis, vulnerabilities and adjustments
Dimitar Bogov and Aneta Krstevska
This chapter describes the impact that the world economic crisis which emerged in 2007-2008 and the sovereign debt crisis which hit individual euro area countries in 2010 has had on South-Eastern Europe (SEE), specifically the countries of Macedonia (abbreviated MKD in all figures), Albania (ALB), Bosnia and Herzegovina (B&H), Croatia (CRO), Montenegro (MNE) and Serbia (SRB); together referred to as SEE-6 in this chapter. Prior to the crisis, these countries all operated under broadly similar conditions; they all had robust growth rates and sound banking systems as well as macroeconomic imbalances of varying degrees. When the crisis occurred, the relatively low degree of integration in world financial markets helped the SEE-6 economies to maintain financial stability while advanced economies faced severe disorders. At the same time, the crisis affected the SEE-6 countries’ growth perspectives, considering their traditional orientation towards the EU market; it put pressure on public finances; and it affected banks’ sources of financing. During the crisis years, the main vulnerability areas of the region switched from the external sector and rapid credit expansion towards the fiscal sector and the worsened quality of the banking sector’s credit portfolio. Looking ahead, the SEE-6 countries are facing the need to adjust their fiscal balances and to move towards medium-term sustainability, as well as the challenge of enhancing growth. In an uncertain global environment, the implementation of structural reforms should remain a priority in the SEE-6 countries that should lead towards long-term sustainable growth.
Section 11.2 of this chapter covers the pre-crisis conditions in the region, while section 11.3 assesses the impact of the crisis on the region, with a special focus on the Macedonian economy as well as a vulnerability analysis for the SEE-6 countries. Section 11.4 elaborates on the challenges of the region in the future, followed by the concluding section 11.5.