Welcome to

Southeast Europe

Southeast Europe (SEE) has undergone a major economic transition over the past 25 years, transforming from a socialist to a market-based economy. The transition has however been particularly uneven and more complicated than in the rest of Emerging Europe due to the turbulent times during the war in the 1990s. Afterwards, the period up to global economic crisis was in most cases dynamic, in which SEE economies recovered and reached the pre-war levels of GDP. Global economic crisis has negatively affected inflow of foreign direct investments. Furthermore, lower demand from the most important trade partners in the EU, negatively affected the level of exports.

The economy of Southeast Europe (SEE) grew faster in 2015 than in the previous four years due to better EU economic conditions and the decreased effects of the international financial crisis. Most of the SEE countries are expected to maintain solid, largely domestic-demand-driven growth in 2016 according to the IMF. Currently, Slovenia and Croatia are the strongest of the SEE economies, with GDP/Capita far higher than those of its neighbors (Figure 1). Slovenia and Croatia are also the only current European Union (EU) member countries in the region, attributing to some of their success. Still they were also the wealthiest regions in the former SFRY throughout the history, which rendered them better equipped to overcome some of the economic issues caused by the collapse of the country.

SEE Economies and Real GDP growth rate, 2015-2020

SOURCE: IMF Economic Database, 2015

Catastrophic floods devastated the region in May 2014, further stifling production, investments, and exports. Despite these setbacks, SEE economies are now experiencing recovery. According to the latest IMF predictions, growth in the region is set to 3.34 percent in 2016, 5.24 percent in 2017, and then to an average of 6.38 percent in 2018 to 2020.

 

Regional Trade Trends

Since 2001, SEE countries implemented trade liberalization with the EU and the Balkan region. Subsequently, the SEE economies are generally classified as open economies, with trade-to-GDP ratios of over 90 percent. Considering their geographic position and proximity to EU markets, trade openness rates of this type make the SEE region highly reliant on Eurozone growth trends. In fact, external demand is arguably the main driver of economic growth in the region. Subsequently, nearly 90 percent of all SEE goods exports either remain within the region or go to the EU.

Major Export Partners of the SEE Region

SOURCE: AT Kearney, 2014

The SEE economies top five exports were transport equipment, electrical machinery, clothing, iron and steel, and mechanical machinery. What remains consistent is that SEE economies cannot seem to transition into exporting high-tech products, which remains consistently low at under 5 percent throughout the decades. Therefore, there is a need for agendas focusing on structural reform, namely in terms of reforming institutions, infrastructure and companies for the needs of changing markets. Strategies should focus on moving away from cheap labor, gaining a competitive advantage on the medium-tech markets and becoming a player on high-tech markets. One logical step in this process is of course the move towards European Union (EU) integration, which some SEE countries have already begun pursuing.