Growth in Europe is expected to slow significantly in 2008–09, reflecting spillovers from weaker global growth, rising commodity prices, and the strains in financial markets. Meanwhile, inflation has picked up, driven by a surge in food and energy prices. The challenges for policymakers in advanced economies are to restore confidence in the financial system and support real activity while maintaining inflation credibility and safeguarding long-term fiscal sustainability. In emerging Europe, policies need to focus on reducing vulnerabilities and strengthening the resilience of the financial system.
Russia’s traditional capacity to puzzle and surprise observers has been revealed again in the economic developments of the past decade. Early in the transition, few outsiders could understand how the population survived such a massive decline in output, the collapse of basic infrastructure, and the nonpayment of wages. Similarly surprising has been the recovery since the financial crisis of 1998. Most observers at the time predicted that it would take many years for Russia to recover from the debt default and ensuing loss of international confidence. Instead, Russia has experienced its first period of sustained growth, and financial markets have become increasingly bullish about Russia’s economic prospects, despite a high degree of uncertainty about prospects for the world economy. This recent optimism should not, however, obscure the fact that there are widely divergent views of the nature of Russia’s newfound prosperity and the extent to which it reflects fundamental changes in the economy that can translate into sustained growth. In this book, IMF staff put forward their interpretation of the startling swings in Russia’s economic fortunes that have marked the past five to six years. The following chapters thus attempt to explain recent developments and identify the key economic challenges that Russia faces.
For the countries of central Europe—the Czech Republic, Hungary, Poland, the Slovak Republic, and Slovenia—this is the Accession decade. By contrast with the uncharted waters of transition in the 1990s, the approaches to European Union (EU) membership—and beyond that the euro—are, in many respects, mapped out in advance. And the prospect of EU membership, from the early days of transition, has served as a policy anchor, helping to catalyze and sustain coalitions for reform. But policymakers face continuing challenges as they frame macroeconomic and financial sector policies during the run-up to accession and, in due course, monetary union. These challenges are the subject of the studies presented here.