The aggregate demand crisis in eastern Europe is not over

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That's my main takeaway from just-released data based on surveys of over 1,800 firms in eastern Europe. In mid-July 2009, firms in six countries were asked whether they had seen an increase, decrease, or no change in sales from the previous year. The numbers then were not pretty—75% of firms reported a decrease in sales (based on an average of country-level data).

The same set of firms were surveyed again in February and March of this year, and there was little improvement. This time, 68% of firms reported a decrease in sales on a year earlier, not a particularly large improvement (especially in light of the fact that more firms have become insolvent or were impossible to locate in this most recent survey). Many of these countries have not had the luxury of engaging in fiscal stimulus policies unlike their richer neighbors to the west.

All of this is particularly worrying for growth prospects in the region. A recent paper asked Will the Crisis Affect the Economic Recovery in Eastern European Countries? and found that the financial crisis has had a disproportionately large impact on young and innovative firms. Since these firms account for a large share of growth, the authors conclude that growth prospects for the region are not great. These new data only amplify the authors' concerns.


Ryan Hahn

Operations Officer

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