The macroeconomic environment for transition
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The transition countries have maintained a strong macroeconomic performance. Although the external environment this year is not as favourable as in 2004, the forecast is for average growth of 5.3 per cent in 2005 (compared with the record 6.6 per cent achieved last year). Domestic demand and, to a lesser extent, net exports continue to drive growth across much of the region. Rapid expansion in domestic credit is sustaining consumption and investment but in many instances widening external imbalances. This expansion has supported financial intermediation across the region and helped the development of the less advanced economies. However, it has also raised concerns about the quality of loan portfolios and about possible risks to the banking sector and wider macroeconomic stability.
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