Reforms, growth and the macroeconomy
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The transition countries experienced strong economic growth in 2007, but this has slowed in 2008 and the region is increasingly feeling the effects of the global financial crisis. However, market-oriented reforms have continued to advance in most countries. For the transition region as a whole, the number of transition indicator upgrades exceeded last year's total, with significant advances in south-eastern Europe and, to a lesser extent, in the Commonwealth of Independent States and Mongolia (CIS+M). The Report finds a strong link between progress in transition and economic growth, but many countries still need to address fundamental structural reforms.
Average growth rates are expected to decline in 2008 by more than 1 percentage point, and are expected to fall further in 2009 by around 3 percentage points. The global liquidity crisis had a limited impact up to mid-2008, but by October 2008 it was clear that the credit boom of recent years was coming to an end. Inflationary pressures emerged across the region, especially in the CIS+M, but are starting to subside. Investor confidence has weakened and foreign direct investment flows this year and next are likely to be well below the record levels seen in 2007.
Inflation, which rose to double digits in many countries in the first half of 2008, continues to pose a threat to macroeconomic stability and sustainable growth. Rising inflation partly reflects higher global food and energy prices, but can also be traced partly to capacity constraints in the region's labour markets. Domestic monetary and fiscal policies have been important factors; countries with inflation-targeting strategies and flexible exchange rates have fared better recently than those with fixed or managed rates.
Note: Since publication of the print version of the Transition Report 2008, the EBRD has revised some projected growth figures for 2009. These amended figures are indicated accordingly on page 10 and Table A.1.1.9 (Chapter 1) of this on-line version.
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