Growth in the EBRD regions averaged 2.1 per cent year on year in the first half of 2019, down from 3.4 per cent in 2018 and 3.8 per cent in 2017. This deceleration reflects continued weakness in Turkey, a slowdown in Russia and slower growth in global trade and the world economy.
Global industrial production slowed, led by a contraction in the automotive sector. Given its deep integration in ‘factory Europe’ and the importance of the automotive industry for the regions’ economies, emerging Europe is highly vulnerable to weakness in the automotive sector and a further slowdown in Germany. Growth in China also decelerated, affecting global demand for commodities and the outlook for commodity exporters.
Technological change weighed on inflows of foreign direct investment (FDI) and the expansion of global value chains, even before trade conflicts had escalated, as automation reduced the value of relocating production to lower-wage economies. FDI inflows to the EBRD regions have continued to moderate in recent years.
On the upside, financing conditions faced by the EBRD regions’ economies and by emerging markets more generally remain favourable relative to historical trends. As emerging markets have strengthened their economic policy frameworks, including more widespread use of flexible exchange rates and inflation targeting, episodes of acute financial tightening have become less common and less pronounced.
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