Moody's: Southeast Europe growing, but still poor
November 29, 2007

Rating agency Moody's has released a report on the transition progress of Southeast Europe. Highlights follow:

Development has progressed in the Balkans, but the region has yet to complete its transition from a Soviet-planned system to a democratic market economy.

Political disagreement is diverting attention away from necessary reforms.

EU accession has been promised to the Balkans, but shifting membership criteria make it difficult to conclude negotiations.

Growing but still poor

Growth in established Western economies is slowing. A recession scenario in the U.S. is increasingly likely. Growth in the euro zone is expected to slow by fourtenths of a percentage point next year. Emerging markets are growing more important as contributors to global growth. One region attracting increased interest from investors is the western Balkans. Croatia, Serbia, and Bosnia and Herzegovina (BiH) have moved beyond regional war and are increasingly getting their economies into shape. Growth over the past few years has been rapid; however, there is still a long way to go. Croatia is the wealthiest of these nations, but its per capita GDP was still a mere 18% of the OECD average in 2006. Bosnia and Herzegovina came in second, with a per capita GDP at 6% of the OECD average, followed by Serbia at 4%.

Real GDP growth rates have outpaced the EU25 average in recent times. The western Balkan economies grew between 5% and 7% last year, with activity accelerating in the first half of 2007. Sources of growth have been widespread, with exports a key driver, particularly for Croatia where they account for roughly half of GDP. This reflects increasing access to markets in the EU. Private consumption is also slowly rising, whilst government spending remains large and burdensome in all three countries.