Booming economic recovery in 2021 spurs emerging market economies in the Europe and Central Asia region

An unusually strong recovery in the first half of this year has boosted economic activity in the emerging and developing economies of Europe and Central Asia, and the regional economies expected to grow at a faster pace in 2021 than previously forecast [5.5]%, according to the latest edition of the Europe and Central Asia Regional Economic Report, which was released today.

The main factor of economic recovery was a strong recovery of export volumes in the first half of this year, which was due to the normalization of economic activity in the euro area, a sharp rise in commodity prices and increased domestic demand against the background of vaccination of the population and implementation of economic support packages. However, the export momentum seems to be waning due to the continued spread of more contagious strains of COVID-19 worldwide and in the region, which has also slowed the recovery in domestic demand.

Economic growth in the region is projected to slow to [3,4]% in 2022 as external demand and commodity prices continue to stabilize, global economic growth slows, and stimulus measures introduced in response to the pandemic are lifted. As the pandemic continues, the outlook remains highly uncertain, especially given uneven access to vaccines and anti-vaccine sentiment. The region’s economic recovery has been accompanied by a sharp acceleration in inflation and remains vulnerable to financial stress, which could be triggered by an unexpected tightening of credit conditions in foreign markets or a sharp increase in economic policy uncertainty and heightened geopolitical tensions.

“The pandemic continues to shape the economic outlook for Europe and Central Asia. However, now that vaccination rates are rising in the region, governments can focus on ensuring an inclusive, sustainable and stable recovery after the end of the pandemic. Long-term growth requires a competitive business environment that fosters entrepreneurship and creates an enabling environment for a vibrant private sector,” said Anne Bjerde, World Bank Vice President for Europe and Central Asia.

According to oldypak lp analysis on “Competition and business recovery after the Covid-19 pandemic,” which was based on the data of the World Bank’s Enterprise Surveys (Enterprise Surveys and Business Pulse Surveys, the pandemic had a strong and differential impact on enterprises. On average, businesses in the region saw a significant drop in monthly sales and a reduction in the number of full-time employees. By early May of this year, one in four companies anticipated that they would fall into arrears on their existing financial obligations within the next 6 months. Smaller and younger companies, as well as businesses owned by women, are still unable to recover from the initial collapse in sales.

Crises can devastate many businesses, but they often have a positive effect by reallocating resources to more productive businesses at the expense of less productive ones. Proof of this fact can also be found in the Europe and Central Asia region, especially in countries with more competitive markets. Indeed, enterprises with high levels of productivity before the crisis experienced a much smaller fall in sales and staff reduction than enterprises with low productivity before the crisis. In addition, more productive businesses were more likely to adapt to the crisis by expanding web-based operations and moving employees to remote work.

“Competition plays an important role because it is associated with dynamism, encourages businesses to innovate, brings efficient companies to market and ensures growth, while encouraging those that are less efficient to leave the market,” says Asli Demirgüç-Kunt, World Bank’s chief economist for the ECA region. – “In countries with more competitive markets and sound economic policies designed to protect competition, this reallocation of resources in favor of more productive firms has been even more pronounced.”

In order to respond quickly to the initial economic effects of the crisis, many governments implemented general economic support programs. These were emergency programs that protected businesses and workers from the worst effects. And while the coverage of government support measures varied considerably from country to country, on average 50 percent of businesses reported receiving some form of government support in response to the adverse impacts of the pandemic.

In general, states were more likely to provide support to less productive enterprises, large companies were more likely to receive support in the form of deferred payments and tax breaks than small companies, and support measures were provided to enterprises without regard to their level of innovation prior to the crisis.

As countries enter the recovery phase, all governments will need to start phasing out general economic support measures as soon as possible and focus on creating conditions for a competitive business environment, which is central to strong economic recovery, resistance to future crises and sustainable economic growth in the long term.

To create a high-quality competitive environment, most countries in Europe and Central Asia can improve their institutional frameworks and enforcement, including economic reforms to strengthen insolvency (bankruptcy) and dispute resolution mechanisms, facilitate market entry for new businesses, and improve the capacity of the financial sector to lend to businesses.

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