Croatia experienced economic growth of 2.6 percent in 2018, which is expected to remain moderate going forward, at an average of 2.5 percent in the 2019-21 period, World Bank’s Economic Update for Europe and Central Asia said on Friday.
Overall, economic growth in the Europe and Central Asia region – which is a geographical grouping of 23 countries in the area from eastern Europe across the Balkans all the way to central Asia – slowed down to 3.1 percent in 2018, and is projected to decline to 2.1 percent in 2019, amid slowing global growth and uncertain prospects.
Upward revisions to GDP data for Russia, the largest economy in the region, contributed strongly to regional growth, alongside accelerating growth in Albania, Hungary, Poland, and Serbia. At the same time, Turkey experienced a severe slowdown, triggered by financial market and currency pressures, with growth forecast at 1.0 percent in 2019, a major decline from 7.4 percent in 2017.
“Europe and Central Asia region is vulnerable to global uncertainty, and it faces several long-term challenges including aging populations, declining productivity, weakening investment, and climate change. The good news is there are a range of policy options available to boost growth and mitigate these challenges,” World Bank Vice President for Europe and Central Asia, Cyril Muller, said.
However, regional growth is expected to pick up modestly in 2020-21, as an anticipated gradual recovery in Turkey offsets moderating activity in Central Europe. However, the region’s long-term challenges remain formidable.
“Countries should close investment gaps, improve governance, participate more in global value chains, and ensure more people have access to financial services including bank accounts and digital payments,” Muller added.
Formidable challenges still facing the region
Regional growth is expected to pick-up modestly in 2020-21, as an anticipated gradual recovery in Turkey offsets moderating activity in Central Europe. However, the World Bank described region’s long-term challenges as “formidable.”
The share of the working-age population in the region has fallen dramatically, World Bank said, due largely to declining fertility rates in the 1990s. Productivity has slowed down by 0.8 percent per year between 2013 and 2017.
Investment growth has slowed sharply, from an average above 15 percent in the five years prior to the global financial crisis to an average of 1.6 percent in the 2014-18 period. And, parts of the region – particularly Central Asia and the Western Balkans – are highly vulnerable to the impacts of climate change, such as droughts, flooding, and increasingly frequent natural disasters.
The report said that more financial inclusion can help countries in Europe and Central Asia address these challenges, because access to financial services facilitates people’s investment in their health, education and businesses, thereby promoting development and reducing poverty.
Financial inclusion key factor for boosting growth
“Financial inclusion can help boost growth and play an important role in addressing many of the region’s long-term challenges,” said Asli Demirgüç-Kunt, World Bank Chief Economist for Europe and Central Asia.
In 2017, about 116 million adults in the Europe and Central Asia region had no bank account, the majority of them living in Russia, Turkey, Uzbekistan, Ukraine, and Romania, the World Bank said.
“Account ownership is the first step into the formal financial system, making it easier to get wages, receive money from friends and family, and collect government payments. It also encourages both saving and borrowing. In emerging countries of Europe and Central Asia, the share of the population with a bank account increased from 45 percent in 2011 to 65 percent in 2017, which is a promising trend. But, there is still a long way to go in many countries.”
It added that being “unbanked” is generally associated with a lack of labor force participation, lower levels of education, and being among the poorest 40 percent of the population. Lack of trust in financial institutions still represents a major concern for people there, which is consistent with low levels of formal savings and the prevalence of informal borrowing throughout the region.
Gender inequality in account ownership also persists: women represent 58 percent of all unbanked adults in the region.
To significantly increase the number of bank account holders in the region, World Bank called on governments to move routine payments into bank accounts. These include wages for public sector workers, public pensions, agricultural payments, and social benefits transfers.
Advances in digital technology and greater use of mobile phones also present major opportunities for governments to expand financial inclusion, close gender gaps, and boost economic growth in countries across the region, World Bank said.
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