2016 has been a rather challenging year when it comes to financial openness and economic growth, as many countries across the globe have seen their economies running out of steam and their national businesses feeling the squeeze, while the investor fear gauge is still rearing high.
Zooming into the area of South East Europe (SEE) on the global financial map, we come across a region that has the potential to be on the right track in terms of growth rates and investment returns but still has to battle against severe material headwinds, including stalled revenues, fiscal easing measures in some of its countries, and investors buckled up in view of financial turbulence.
An in-depth look at the economies and emerging markets of SEE for 2016 offers glimmers of hope and raises expectations as we step into 2017. A steady growth rate of 3% has been reported for the region, along with an encouraging growth in revenues for a good range of industry areas and positive GDP projections. Zeroing in further on the core markets of our firm’s practice in the SEE region (our firm offers legal services in 11 countries out of offices in Greece (opened in 1992), Romania (2005), Albania (2007), and Cyprus (2016)), the emerging economies are showing slight signs of recovery and stabilization, with Romania and Cyprus leading the rebound.
Following almost seven years of austerity-driven recession, Greece still manages to maintain its top position among Europe’s most indebted countries by racking up huge amounts of government debt. The first half of 2016 has seen Greek exports struggle, mainly due to capital controls and structural rigidities, as the trade deficit decreased by 16.1% to EUR 1.74 billion in October 2016 from a EUR 2.1 billion gap in the same month of the previous year. Greek economic and credit growth have suffered greatly from the increased level of non-performing loans, the management of which has occupied a good deal of our client portfolio in terms of legal offering. Interestingly, however, the OECD reports that growth has rebounded in the second half of 2016 and is expected to gradually increase in 2017, with many investors raising their expectations following announcements of structural reforms to reduce the regulatory burden in key industry sectors. Over recent months we have seen a few of our key clients in Greece – including both multinational companies and real estate funds – preparing to re-cluster and reboot some of their large-scale projects in anticipation of the conclusion of a policy review with creditors, which could rekindle investor confidence for the coming year.
Despite a long period of political fluctuations and corruption scandals, Romania closes 2016 with a recently elected government and rapid growth, accompanied by a boom in domestic demand. Statistics report that through Q3 the Romanian economy expanded significantly, with industrial output inching up approximately 3.4% from last year. Most of our clients seem to be comfortable in choosing Romania for their business expansion in the SEE, confirming that it is a jurisdiction with a promising future in 2017 in the form of high investment rates and FDI levels – or, in other words, a stable and low-risk business environment for multinational and global industry players.
The fact that SEE consists of an impressive mixture of countries with radically different economies and levels of market development is further confirmed by the presence of Albania in the same zone. Over our 10-year operation in the country, we have experienced the transformation of one of the poorest nations in Europe to an autonomous market-oriented economy. Albania recorded growth throughout 2016, attracting significant private investment and reporting high domestic demand, and it is expected to maintain its economic growth levels throughout 2017, with a minor forecasted percentage loss. Albania is currently getting ready to enter a pre-election period with a strong reform plan in hand, and it remains to be seen whether it can leverage that momentum in favor of EU integration. On the negative side, corruption and an inconsistent rule of law remain the great challenges for Albania, which, if not successfully addressed, will be definite deal-breakers for any progress.
Moving onto a more stable orbit than the aforementioned jurisdictions, Cyprus – despite the 2012-2013 crisis – has been showing steadily increasing growth rates over the last seven years and has managed to reach the end of 2016 with its economy on a solid footing. Although the transaction volume in the Cypriot real estate market stayed at low levels and is expected to continue in mediocrity for the first half of 2017, overall, Cyprus has secured for its national and international investors a protected regulatory environment with enhanced compliance measures and risk management procedures.
On the basis of the above, if we had to field the question of what is next for SEE markets in the coming year, we would definitely share our optimism that the economies of the region will continue to expand throughout 2017 – with Romania continuing to be a top performer – ensuring macroeconomic stability, a big investment flow, and an overall credit rating upgrade.