In 2008, the world economy experienced the negative effects of the crisis on financial markets. While this crisis was at first mainly limited to international financial markets, its impacts were also felt by the real global economy by the fourth quarter of 2008.

In the US, the continued weakness of the banking and financial system led the US economy into its deepest recession since 1982. In Europe, economic growth in most countries was also greatly affected by the financial turbulences and economic decline. Initial forecasts for 2009 predict the GDP of the Eurozone to decrease by 1.2 %.

As a small, export-oriented country, Austria was not immune to this downward trend. While the Austrian economy managed to fight the negative market trends until the autumn of 2008, it was then even more affected by the crisis in the following period. Despite the massive countermeasures taken by the federal government, it is expected that Austria’s GDP in real terms will decrease by 0.5 % in 2009. At the end of 2008, the German economy found itself at the brink of a recession with growth of approximately 1.7 %. Almost all economic data has been deteriorating in the last months and indicates that the decline of total economic production has accelerated even further during the last quarter. The Italian economy was already close to a recession at the beginning of the second quarter. In this context, both investment activities as well as private consumption experienced significant declines.

The global shortfall of funds created a massive problem for Central and Eastern Europe – a region which has experienced tremendous growth in the last years. The rapid catch-up process underway during the past years was largely supported by capital inflows from the Eurozone, whereby companies as well as private households considerably expanded their debts in the last few years. In 2008, this was offset by a massive loss of confidence on international financial markets. In view of the stagnating imports by its neighbouring countries, Slovenia had to face an expected 3.8 % decrease in economic growth in 2008. In addition, the international financial crisis made it harder for Slovenian banks to access funds from abroad. The Croatian economy underwent a similar development. According to initial forecasts, GDP growth slowed to 2.2 % in the past financial year, mainly on the basis of the effects of the global economic situation on tourism, but also due to a change in domestic consumer behaviour. Similar to practically all South Eastern European stock exchanges, the Croatian equities market is finding itself under tremendous pressure.

Following the positive pricing developments in previous years, the Crobex Index 2008 incurred losses of approximately 67 %. By signing the Stabilisation and Association Agreement (SAA) with the European Union on 16 June 2008, Bosnia and Herzegovina was on track to EU membership. The country’s economy reacted positively, and GDP grew by 6.5 % according to initial estimates. In Serbia, which also signed the SAA treaty with the EU in 2008, economic growth slowed to 6.0 %, mainly due to the sudden disappearance of foreign investors as of October. The massive increase in Serbia’s inflation rate was an additional negative factor. On 15 December, the government of Montenegro submitted its application for official EU membership.

Forecasted GDP is expected to increase by approximately 8 % in 2008; however, it is likely that this growth period has now reached its end, as tourism and its associated industries were the main drivers behind last year’s growth. In Bulgaria, expected economic growth for 2008 reached levels of approximately 6.5 %. The country benefited from solid growth in the first half year before encountering the negative effects created by a loss of confidence on the part of customers and investors during the second half of the year. Hungary also experienced disparate growth for the 2008 financial year. While all macro-economic indicators still posted increases during the first half of the year, Hungary’s economy did not stay immune to the effects of the global financial crisis. Based on initial reports, real GDP grew by 1.7 %.

In view of the current situation on global financial markets, it is fairly difficult to issue forecasts for 2009. Growth forecasts for subsequent years are based on the assumption that the economy will slowly start to rebound towards the end of 2009.