Approaching storm. Report on transformation

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As recessionary triggers, along with waves of the current financial instability, are coming mainly from the eurozone, the CEE region faces two main risks. The first danger is that, as with all the emerging economies, CEE countries may easily become victims of a possible global financial panic and the resulting ‘flight to security’ behaviour. The second danger is caused by the very strong links of the region with western European economies and with the fate of the euro.

Both the deteriorating financial situation in the Southern part of the eurozone and the plausible widespread recession in the EU are likely to have a deep impact on CEE countries. Their ability to deal with a new threat crucially depends on the strengths and weaknesses of their respective economies.

The significance of the Western Europe’s recession for the CEE countries obviously depends on the extent to which their economies are open to trade and dependent on the exports to southern European eurozone members. Moreover, CEE countries with little room to manoeuvre in their macroeconomic policy will not be able to compensate for external shocks with any domestic stimulus.