On October 7, the World Bank released its latest edition of its Economic Update for Europe and Central Asia. According to the report, the COVID-19 pandemic has sunk the global economy into the deepest recession in eight decades. In the emerging and developing countries of Europe and Central Asia, GDP is expected to contract 4.4 percent in 2020. This update summarizes recent developments and presents the outlook for the region.
The economies hardest hit were those with strong trade or value chain linkages to the Euro area or Russia and those heavily dependent on tourism or energy and metals exports. Economies that were slower to implement measures to stem the spread of the virus suffered more widespread outbreaks, higher death rates, and steeper declines in activity than economies that did so more rapidly, as restrictions to contain the pandemic had to be more stringent.
Growth is projected to recover in 2021, but the pace of recovery is highly uncertain and depends on the duration of the pandemic, the availability and distribution of a vaccine, and the degree of improvement in trade and investment. The recovery could be weaker than expected if the pandemic worsens, necessitating prolonged restrictive measures and/or escalating geopolitical tensions.
Once the health and economic crises caused by the COVID-19 pandemic are brought under control, policy efforts in the region will need to address the steep fall in productivity growth over the past decade and focus on structural reforms that are essential to reignite long-term growth prospects. Strengthening governance and improving institutional quality could yield growth dividends and attract investment, the report states.
“In such challenging times, countries in Europe and Central Asia must look beyond the immediate crises and prepare for a post-pandemic resilient recovery,” said Anna Bjerde, World Bank Vice President for the Europe and Central Asia region. “This means strengthening governance, improving the investment climate, and fostering innovation and digital development. Significant and sustained investment in quality education and health care will be especially critical.”
According to the World Bank, the pandemic-induced contraction in 2020 is also expected to increase poverty in all countries in the region. At the $3.20 per day poverty line, estimates suggest an additional 2.2 million people may slip into poverty. At the $5.50 per day poverty line, customarily used in upper-middle-income countries, the increase in poverty could be as high as 6 million people.