South Eastern Europe Economic Forecast

Economic Snapshot for South-Eastern Europe

January 12, 2021

The regional economy is set  to return to growth this year, recovering from the pandemic-induced downturn. The reopening of economies is set to buttress domestic and foreign demand; however, a sluggish labor market recovery,   particularly as fiscal support measures are wound down, will limit household spending. Moreover, uncertainty regarding the pandemic clouds the outlook.

SEE Monetary & Financial Sector News

Inflation in the region rose to 7.2%  in November from 6.2% in October, amid a jump in price pressures in Turkey. Looking ahead, inflationary forces are set to moderate in the region on average as inflation cools in Turkey . However, elsewhere they are forecast to increase due to recovering domestic demand. Relatively low oil prices, though, will limit upward pressures.

Central Banks in the region took further action in recent weeks, albeit for varying reasons. In Turkey, the interest rate was hiked  amid a deteriorating inflation outlook, while the Serbian Central Bank lowered the key rate  to support activity and the Albanian counterpart stood pat. This year, monetary policy is expected to remain supportive on average.

In recent weeks, the Turkish lira regained some lost ground against the U.S. dollar amid a more orthodox policy outlook. Meanwhile, the Albanian led, Romanian leu and Serbian dinar were relatively stable against the euro. Going forward, the lira will remain under pressure in contrast to solid currency performances elsewhere in the region.

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