Low Commodity Prices and Weak Currencies – the “New Normal” for Europe and Central Asia
The countries of Europe and Central Asia are transitioning to a “new normal” that is characterized by low commodity prices, slow trend growth of global trade and less abundant availability of international liquidity. The transition is challenging because the region has not fully recovered yet from the after-effects of the global financial crisis and current volatile conditions in international financial markets create headwinds.
The eastern part of the region faces the difficult adjustment to low commodity prices, which comes with sharp real deprecations, job losses in construction and domestic services, falling asset prices, increased fragility in partly dollarized financial sectors, and declining household incomes. In the western part of the region, the recovery remains fragile. In Southern European countries, access to finance will not be as easy as it had been before 2008, but there are now real opportunities to leave the crisis behind and to steadily create new jobs. Policy makers can seize these opportunities if they move beyond firefighting and create conditions for reinvigorating competitiveness.