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EU’s Disharmony the Greatest Risk for the Stability of Investment Environments in CE and SEE, Most Stable in 2016 Slovakia and Slovenia

For the fourth consecutive year, the Institute for Strategic Solution prepared its annual foresight of political, social and economic trends. This year’s Strategic Foresight – Strategic Foresight 2016: Central and South East Europe – includes a forecast of changes in the stability of Investment Environments as well as expected political, social and economic uncertainties in 16 Central and South East European countries. In its Foresight ISR concludes the economic situation in the last four years has improved significantly but it emphasises it will take some time before the citizens will feel the positive effects. The problem of disharmony and disunity among the EU Member States, could due to their inability to reach consensus on specific matters in the next year become even more evident. In 2016 ISR considers Slovakia and Slovenia as most stable Investment Environments among the analysed countries. On Tuesday, 5 January 2016, ISR is preparing a “Conference on the International Business Environment in 2016”, which will be held under the high patronage of the European Parliament and will address the investment issues in Central and South East Europe in 2016.

Ljubljana based Institute for Strategic Solutions in its fourth consecutive Strategic Foresight of political, social and economic developments concludes that in 2016 the focus of governments will shift from adopting austerity measures for economic recovery towards adopting measures for improving the quality of life. If the countries will manage to be successful with the adoption of measures targeted at raising the employment rate, lowering the poverty rate and consequently raising the purchasing power, ISR is convinced this will present the top opportunity for overall socio-economic development in 2016. Maintaining the current economic stability and GDP growth will however remain the top challenge.

Economic Growth Has Returned, However an Increase in Political and Social Uncertainties is Expected

In its Strategic Foresight ISR concludes that the economic growth has returned in the analysed countries. All countries, apart from Greece (-1.3 % GDP growth in 2016), will reach positive economic growth in 2016. According to IMF forecast Slovakia will have a 3.6 % GDP growth while Poland’s growth will reach 3.5 %. Also Montenegro (3.5 %), Romania (3.9 %) and Kosovo (3.8 %) will have a relatively high GDP growth in 2016. “If in the past we were constantly looking at negative or minimal economic growth in the relatively stable political environment, we can clearly see this trend is turning around,” said the director of ISR Tine Kračun, while at the same time adding that “political and social uncertainties are strengthening, which clearly shows that positive effects of the economic recovery are not yet seen in the social sphere.”

Inability of EU to Act Together in Crisis is the Largest Risk Factor of the Stability of Investment Environments in 2016

In 2015 Europe was faced with many challenges (terrorism, refugee-migration crisis, Grexit, strengthening of right and left extremism…), which yet again showed reaching a consensus in a Union of 28 countries is a difficult task. Due to the expected continuation of last year’s challenges and emergence of new ones, EU’s heterogeneity could have a negative impact on the economic as well as socio-political development of the Central and South East European countries. Countries that are already in the process of joining the EU will be the most vulnerable. It is expected that high youth unemployment rate (all countries have problems with it but Greece, Croatia and BiH have the highest youth unemployment rate among the 16 analysed countries) will remain one of the biggest problems. Labour market in the majority of the analysed countries remains rigid, there is a scarcity of new jobs, and consequently increasing number of people decide to go abroad. The low purchasing power, which is also problematic in Central European countries that have relatively low unemployment rate, remains worrying.

South East European Countries Significantly Less Attractive for FDI

Out of all 16 analysed countries Slovakia, Slovenia and Czech Republic will have the most stable Investment Environments in 2016. This comes as no surprise as the three countries are politically relatively stable. Apart from that Slovakia and Czech Republic also have one of the strongest economic growths in the EU. Slovenian economy is also expected to strengthen further and stabilise, mainly due to export and domestic consumption growth, in 2016.

On the other hand, BiH, Serbia and Kosovo will have – albeit relatively strong economic growth – the least stable Investment Environments in 2016. Political turmoil, social unrests, traditionally present Social Uncertainties on one side and highly present corruption and pressure from the international society on the other remain the main variables to have the biggest influence on the overall (in)stability of their Investment Environments. Croatia will mark the biggest improvement of the stability of the Investment Environment in one-year time. This will mainly come as the consequence of expected greater political stability, lower unemployment rate and higher domestic consumption.

 

You can order your copy of the publication Strategic Foresight 2016: Central and South East Europe via maja.bratusa@isr.si.

Price:  50 EUR (VAT included).