Trade in Transition, May 2017

Trade in Transition, May 2017

Growth in Europe and Central Asia (ECA) is forecast to accelerate slightly in 2017, following the stabilization of oil prices, benefitting the eastern half of the region, and a continued recovery in the western half of the region. After strong economic headwinds in recent years, economies in Europe and Central Asia (ECA) are returning to a more stable growth path and the region is expected to grow 1.9 percent in 2017 and 1.8 percent in 2018.

Trade in Transition finds that in the European Union a sustained, albeit modest, recovery has started to reduce unemployment, pushing inflation into positive territory. In Eastern Europe the stabilization of oil prices at about $50 a barrel has provided some breathing room for governments, which have begun adjusting their policies to the lower prices

The report also notes that policies focused on improving trade in the region are crucial for building on this modest growth. Trade has been vital in improving the lives of people in ECA. From the transition period in the 1990s to today, trade has promoted growth, created jobs, and granted access to various goods and services for millions of people.

The slowdown of China’s exports, which has driven the recent slowdown in global trade, has opened up new opportunities for ECA, but the region will have to navigate three important new transitions to continue to fully benefit from trade.

  • The first is the continued shift of resources from production that is not internationally traded to production that competes in international markets.
  • The second transition is a reorientation toward Asia. ECA currently relies strongly on intraregional trade and is underperforming in Asian markets. Robust future growth requires a rebalancing of these trade links.
  • The third transition is the shift from goods to services, where most future growth opportunities lie.

All three transitions will have consequences for specialization patterns, investment patterns, and labor markets. As countries navigate these transitions, they will have to rethink not merely trade relations but the way factor markets are organized.