The opening up of Eastern Europe to the rest of the world in the early 1990s brought about tremendous benefits. The inflow of capital and innovation has led to better institutions, better economic management, and higher efficiency. On the flip side, it has also led to sizable and persistent outflow of people.
Inflation has been falling sharply across Europe since 2012 (see Charts 1 and 2). Across Central and Eastern Europe (CEE), inflation expectations have also drifted down especially among countries who peg their currencies to the euro (Bulgaria, Croatia, as well as Lithuania, which adopted the euro on January 1, 2015), but also in those that target their inflation rate (the Czech Republic, Hungary, Poland, and Romania).
The recent drop in world oil prices has re-ignited the debate about good vs. bad disinflation. For the euro area, risks from low inflation have been discussed in the March 2014 iMFdirect post. Our blog examines the causes and potential consequences of falling inflation from the perspective of EU countries outside the euro zone.
Central, Eastern, and South-Eastern Europe: Safeguarding the Recovery as the Global Liquidity Tide Recedes
(Version in Türk)
Growth is gathering momentum in most of Central, Eastern, and South-Eastern Europe (CESEE) in the wake of the recovery in the euro area. Excluding the largest economies—Russia and Turkey—the IMF’s latest Regional Economic Issues report projects the region to grow 2.3 percent in 2014, almost twice last year’s pace. This is certainly good news.
There are a trillion reasons to care about who owns emerging market debt. That’s how much money global investors have poured into in these government bonds in recent years —$1 trillion. Who owns it, for how long and why it changes over time can shed light on the risks; a sudden reversal of money flowing out of a country can hurt. Shifts in the investor base also can have implications for a government’s borrowing costs.
What investors do next is a big question for emerging markets, and our new analysis takes some of the guesswork out of who owns your debt. The more you know your investors, the better you understand the potential risks and how to deal with them.