As Figure 1 shows, the average real GDP growth rate for the Black Sea region in 2011 reached an estimated 4.1%. This is similar to, albeit slightly below, the real GDP growth rate of 4.3% achieved in 2010, and indicates that as a whole the region has reached and surpassed the levels of economic output up to mid-2008, just prior to the sharp economic downturn that resulted in the aftermath of the global financial crisis of September 2008.

The first part of 2011 was a continuation of the strengthening growth recorded in the latter part of 2010, with both domestic and external demand increasing at the fastest pace since the 2008-09 downturn. However, global growth prospects were affected negatively by a series of shocks including the Japanese earthquake and tsunami, which disrupted global supply chains, the Arab Spring which fueled upward volatility in energy prices, and most importantly, the continuing turmoil of the Eurozone crisis. These exogenous shocks took their toll on the Black Sea region, and as a result, growth in the second part of 2011 slowed, with key indicators of manufacturing and industrial production in particular weakening.

 

From a structural perspective, private domestic consumption was the main ‘engine’ driving growth. Already, the single largest structural component in the region’s economies, as a rule private consumption grew at a pace faster than that of a country’s economic growth. External demand was also strong and contributed to regional GDP growth. Regional exports grew impressively 25% in 2011 over 2010 levels and reached record levels but they represent a much smaller component of regional economies so they had less overall impact upon growth. Notwithstanding exceptions in countries with high revenue growth, government consumption growth was generally lower as most countries continued an ongoing process of fiscal consolidation that they began in response to the fiscal deterioration caused by the economic downturn in 2009. Investment growth, both public and private, was more mixed but in countries experiencing positive growth its rate of increase was generally above the overall growth rate.

 

Turning to the supply side and looking at economic sectors of origin, an interesting feature in 2011 was that the agricultural sector generally grew most robustly, with production in the industrial sector also growing at rates above those in the economy as a whole. With the exception of the highest growth countries in the region, services- including construction- grew more sluggishly as a rule. However, since agriculture is the smallest sector of the economy in most countries, generally contributing around 5-10% of GDP, its stronger growth had less of an impact on overall economic growth. The industrial sector typically contributes around 20-40% of GDP to the economies of the region, while services are the single biggest sector, contributing anywhere from 50-70% of GDP. In past years services and construction had posted the greatest rate of expansion and thus reached their predominant position in the economy. Financial sector uncertainties contributed to this sluggishness, and impacted other sectors such as construction activity, where lower and more uncertain availability of financing resulted in reduced growth.

Table 1 shows a detailed summary of key macroeconomic indicators for 2011, broken down by country. It shows that outturns from country to country were varied, although only one experienced negative growth. Greece, caught up in the ongoing Eurozone crisis, experienced a serious economic contraction. Other countries in the Western part of the Black Sea region achieved modest, positive growth, with the other Balkan countries clustered in the 1.5-2.5% real GDP growth range. Growth rates were generally higher in the Eastern part of the Black Sea region. Armenia and Russia achieved growth above 4%; Georgia, Moldova and Ukraine posted growth in excess of 5%, while Turkey realized the highest growth in the region above 8%. Azerbaijan represented an exception of sorts, achieving virtually zero growth after several years of impressive expansion. However, even this hides the fact that this slowdown was due to declines in oil and gas production, which over the past decade have been the principal drivers of the country’s rapid economic growth. And this slowdown in turn was fully offset by growth in the non-energy sectors of the economy, which posted real growth of about 9%.