## The Emerging Bright Spot in Europe

_IMF Blog, May 18, 2011_

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**Canonical URL:** [The Emerging Bright Spot in Europe](https://www.imf.org/en/blogs/articles/2011/05/18/emerging-bright-spot-in-europe)

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## Bibliographic details
- Authors: Antonio Borges
- Published: May 18, 2011

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### Overview
- Author: Antonio Borges
- Date: May 18, 2011
- Context: Contrasts persistent troubles in Portugal, Greece, and Ireland with a strong comeback in many economies in emerging Europe following the 2008/09 financial crisis.

### Recent growth patterns and key statistics
- Lithuania grew "an eye-catching 14.7 percent in the first quarter of 2011."
- Estonia: "exports of goods in the fourth quarter of 2010 were 52 percent higher than a year earlier."
- Current account deficits during the boom years: "25 percent of GDP in Latvia and almost 30 percent of GDP in Bulgaria."
- Recovery breadth: "growth is driven by exports and manufacturing" and is "broadening to include investment and even consumption."
- Outlook for 2011: "domestic demand is set to become the main growth engine in emerging Europe."
- Past crisis timing referenced as the "2008/09 financial crisis."
- Wage dynamics: the "wage explosion of 2007-08 has given way to a decline in labor costs across the region."

### Drivers of the turnaround
- Markets at work:
  - Profitability shifted away from real estate, construction, and finance (previously artificially inflated by asset price bubbles and under-pricing of risk) toward other sectors, notably manufacturing and exports.
  - Improvement in competitiveness supported the sectoral reallocation.
- Policies:
  - "Painful but determined fiscal adjustment put public finances back on track," reducing perceived risk.
  - Example: Latvia’s credit default swap spread "is 200 basis points today―down from 1100 basis points in 2009."

### Policy recommendations to sustain recovery and raise long-term growth
- Structural policy priorities:
  - "Remove bottlenecks in energy, transportation, and communication" to boost productivity.
  - Use "funding from the European Union" to overcome domestic resource constraints for infrastructure and reforms.
  - "Efforts to upgrade the skills of the labor force" to enable industry to climb the quality ladder.
- Macroeconomic policy guidance to prevent future boom-bust cycles:
  - Apply tighter policies when the next boom takes off to reduce the risk of overheating and resource diversion into low-competition sectors (real estate, banking).
  - When revenues are growing strongly, avoid using them to increase spending and public wages as was done during the boom years.
  - Build up savings during boom years to "stimulate the economy during a downturn," noting that "large, even very large, surpluses may be needed during boom years."

### Remaining challenges and outlook
- Recovery rebuilding lost output will take time for many crisis-hit countries.
- Emerging Europe has significant scope to catch up with advanced Europe, but catching-up requires the "right policies"; otherwise countries risk getting "stuck," as illustrated by Greece, Ireland, and Portugal.

*Antonio Borges, May 18, 2011*

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## Content in this bundle

- **O foco positivo que emerge na Europa Por Antonio Borges**
  - [O foco positivo que emerge na Europa Por Antonio Borges (Markdown version)](/external/lang/portuguese/np/vc/2011/051811p.pdf.md){rel="alternate" type="text/markdown"}
  - [O foco positivo que emerge na Europa Por Antonio Borges (PDF)](/external/lang/portuguese/np/vc/2011/051811p.pdf){rel="external" type="application/pdf"}
- **Новое светлое пятно в Европе - Антонио Боржес**
  - [Новое светлое пятно в Европе - Антонио Боржес (Markdown version)](/external/russian/np/vc/2011/051811r.pdf.md){rel="alternate" type="text/markdown"}
  - [Новое светлое пятно в Европе - Антонио Боржес (PDF)](/external/russian/np/vc/2011/051811r.pdf){rel="external" type="application/pdf"}

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_Source: https://www.imf.org/en/blogs/articles/2011/05/18/emerging-bright-spot-in-europe_