Economic growth in the Europe and Central Asia region slowed to 3.1% in 2018, and it was projected to decline to 2.1% in 2019, amid slowing global growth and uncertain prospects, according to the World Bank’s Economic Update for Europe and Central Asia.

Growth in countries across the region varied. Upward revisions to GDP data for Russia, the largest economy in the region, contributed strongly to regional growth, alongside accelerating growth in Albania, Hungary, Poland, and Serbia.

Meanwhile, Turkey experienced a severe slowdown, triggered by financial market and currency pressures – growth is forecast at 1.0% for 2019, a major decline from 7.4% in 2017.

“Europe and Central Asia is vulnerable to global uncertainty, and it faces several long-term challenges including aging populations, declining productivity, weakening investment, and climate change.

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The good news is there are a range of policy options available to boost growth and mitigate these challenges,” says Cyril Muller, World Bank Vice President for Europe and Central Asia.

“Countries should close investment gaps, improve governance, participate more in global value chains, and ensure more people have access to financial services including bank accounts and digital payments.”

Regional growth is expected to pick-up modestly in 2020-21, as an anticipated gradual recovery in Turkey offsets moderating activity in Central Europe. However, the region’s long-term challenges remain formidable.

The share of the working-age population in the region has fallen dramatically, due largely to declining fertility rates in the 1990s. Productivity slowed to 0.8% per year between 2013 and 2017.

Investment growth has slowed sharply, from an average above 15% in the five years prior to the global financial crisis to an average of 1.6% in the period 2014-18.

And, parts of the region – particularly Central Asia and the Western Balkans – are highly vulnerable to the impacts of climate change, such as droughts, flooding, and more frequent natural disasters.

The report says financial inclusion can help countries in Europe and Central Asia address these challenges because access to financial services facilitates people’s investment in their health, education and businesses, thereby promoting development and reducing poverty.

“Financial inclusion can help boost growth and play an important role in addressing many of the region’s long-term challenges,” says Asli Demirgüç-Kunt, World Bank Chief Economist for Europe and Central Asia. 

“Account ownership is the first step into the formal financial system, making it easier to get wages, receive money from friends and family, and collect government payments. It also encourages both saving and borrowing.

In emerging countries of Europe and Central Asia, the share of the population with an account increased from 45% in 2011 to 65% in 2017, which is a promising trend. But, there is still a long way to go in many countries.”

In 2017, about 116 million adults in the Europe and Central Asia region had no bank account, the majority living in Russia, Turkey, Uzbekistan, Ukraine, and Romania. Being unbanked is generally associated with a lack of labor force participation, lower levels of education, and being among the poorest 40% of the population.

Lack of trust in financial institutions represents a major concern for people, which is consistent with low levels of formal savings and the prevalence of informal borrowing throughout the region. Gender inequality in account ownership also persists: women represent 58% of all unbanked adults in the region.

To significantly increase the number of bank account holders in the region, the report argues that governments can play a critical role by moving routine payments into bank accounts.

Such payments would include public sector workers’ wages, distribution of public pensions, agricultural payments and social benefits transfers to people in need.

Advances in digital technology and greater use of mobile phones also present major opportunities for governments to expand financial inclusion, close gender gaps, and boost economic growth in countries across the region.

What is the Fastest Growing Country in Asia?

Did you know that Asia is expected to contribute towards 60% of global growth by 2030? 

Here’s our research and analysis of the fastest-growing Asian countries heading into the 2020s. Let’s do some digging and get behind the data.

Fastest-growing Economies in Asia: IMF Data

There’s scarcely any bigger authority when it comes to matters of GDP than the International Monetary Fund, whose data is backed up by rigorous research.

We’ve collated information from their World Economic Outlook to produce this interesting lowdown of those countries expecting the biggest growth over the next five years.

Asian Countries Ranked by Average Forecasted Real GDP Growth (%), 2020–2024

Source: World Economic Outlook, IMF.

Country	2020	2021	2022	2023	2024	Avg
Bangladesh	7.4	7.3	7.3	7.3	7.3	7.3
India	7	7.4	7.4	7.4	7.3	7.3
Bhutan	7.2	5.9	6.9	7.2	6.4	6.7
Lao PDR	6.5	6.7	6.8	6.8	6.8	6.7
Cambodia	6.8	6.7	6.6	6.6	6.5	6.6
Vietnam	6.5	6.5	6.5	6.5	6.5	6.5
Philippines	6.2	6.4	6.5	6.5	6.5	6.4
Myanmar	6.3	6	6.1	6.3	6.4	6.2
Uzbekistan	6	6	6	6	6	6
Turkmenistan	6	5.8	5.9	5.9	5.8	5.9
China	5.8	5.9	5.7	5.6	5.5	5.7
Maldives	6	5.5	5.5	5.5	5.5	5.6
Nepal	6.3	5.8	5.3	5	5	5.4
Mongolia	5.4	5.1	5.6	6	5	5.4
Indonesia	5.1	5.2	5.3	5.3	5.3	5.3
Georgia	4.8	5	5.2	5.2	5.2	5
Malaysia	4.4	4.9	4.8	4.8	4.9	4.8
Timor-Leste	5	4.8	4.8	4.8	4.8	4.8
Armenia	4.8	4.5	4.5	4.5	4.5	4.6
Afghanistan	3.5	4	4.5	5	5.5	4.5
Tajikistan	4.5	4.5	4.5	4	4	4.3
Sri Lanka	3.5	4.3	4.5	4.6	4.8	4.3
Pakistan	2.4	3	4.5	5	5	4
Kazakhstan	3.9	3.7	3.3	5.3	3.5	3.9
Tuvalu	4.4	4.2	4.1	3.9	2.7	3.9
Kyrgyz Republic	3.4	3.8	4.6	3.4	3.4	3.7
Thailand	3	3.5	3.6	3.6	3.6	3.5
Brunei Darussalam	4.7	3.6	3.5	2.4	2.1	3.3
Fiji	3	3.2	3.2	3.2	3.2	3.2
Papua New Guinea	2.6	2.5	3.1	3.4	3.5	3
Vanuatu	3.1	2.8	2.8	2.9	2.9	2.9
Solomon Islands	2.9	2.7	2.7	2.8	2.9	2.8
Republic of Korea	2.2	2.7	2.9	2.9	2.9	2.7
Tonga	3.7	2.9	2.4	2.1	2	2.6
Samoa	4.4	2.2	2.2	2.2	2.2	2.6
Hong Kong SAR	1.5	2.5	2.7	2.7	2.9	2.5
Azerbaijan	2.1	2.1	2.2	2.3	2.4	2.2
Kiribati	2.3	2	1.9	1.9	1.8	2
Palau	1.8	2.2	2	2	2	2
Singapore	1	1.6	2.2	2.4	2.5	1.9
Marshall Islands	2.3	2	1.8	1.6	1.2	1.8
Nauru	0.7	1.3	1.6	1.9	2	1.5
Micronesia	0.8	0.7	0.6	0.6	0.6	0.6
Japan	0.5	0.5	0.5	0.5	0.5	0.5

The Asian Development Outlook

An interesting report was recently released that takes a look at developing and newly-developed Asian countries — the Asian Development Outlook.

Which burgeoning Asian economies should we be looking closely at? According to the figures, the most noteworthy high-growth developing Asian countries for 2020 and beyond are… 

• Bangladesh — 8%; growth driven by foreign investment in low-cost textiles, garments and shoes.
• India — 7.2%; growth powered by manufactured goods and electronics.
• Tajikistan — 7%; surge led by industry and services as well as ‘buoyant’ domestic demand.
• Myanmar — 6.8%; domestic economic reforms and growing consumer spending boosting economic activity.
• Cambodia — 6.8%; Chinese investment in real estate, tourist resorts and infrastructure have aided Cambodia’s growth prospects.
• Vietnam — 6.7%; added-value manufactured goods (such as electronics) have put rocket boosters under Vietnam’s growth.

The report notes “growth in developing Asia remains robust but is expected to moderate” due to trade tensions between the US and China. Across the continent, average growth will edge up to 5.5 percent next year.

With rapid urbanisation promising sustained income and job growth, there is a “growing importance of cities in developing Asia”. Rapid urbanisation in the region has the potential to deliver sustained income and job growth; the rate of urbanisation is projected to rise from 46% in 2017 to 64% by 2050.

Here’s the breakdown of GDP growth stats by country.

Country	Projected GDP Growth, 2020
Bangladesh	8.0
India	7.2
Tajikistan	7.0
Cambodia	6.8
Myanmar	6.8
Vietnam	6.7
Maldives	6.3
Nepal	6.3
Laos	6.2
Philippines	6.2
Mongolia	6.1
Uzbekistan	6.0
China	6.0
Bhutan	6.0
Turkmenistan	5.8
Timor-Leste	5.4
Indonesia	5.2
Malaysia	4.7
Georgia	4.6
Armenia	4.5
Cook Islands	4.5
Kyrgyz Republic	4.4
Tuvalu	4.4
Sri Lanka	3.5
Samoa	3.5
Kazakhstan	3.4
Afghanistan	3.4
Fiji	3.2
Thailand	3.2
Pakistan	2.8
Vanuatu	2.8
Solomon Islands	2.7
Micronesia	2.5
Tonga	2.5
Azerbaijan	2.4
Republic of Korea	2.4
Kiribati	2.3
Marshall Islands	2.2
Papua New Guinea	2.1
Taipei, China	2.0
Hong Kong, China	1.5
Brunei Darussalam	1.5
Singapore	1.4
Palau	1.0
Japan	0.5
Nauru	0.1

Region of Asia	Growth rate of GDP (%)
South Asia	6.7
East Asia	5.4
Southeast Asia	4.7
Central Asia	4.3
The Pacific	0.4

What is the Fastest Growing Country in Europe?

The European Commission’s European Economic Forecast for Autumn 2019 is a great place to start. Here’s their real GDP growth figures from the report for 2019, 2020 and 2021.

European Countries Ranked by Average Forecasted Real GDP Growth, 2019–2021 (%)

Source: European Economic Forecast Autumn 2019, European Commission.

Country	2019	2020	2021	Avg
Malta	5.0	4.2	3.8	4.3
Ireland	5.6	3.5	3.2	4.1
Romania	4.1	3.6	3.3	3.7
Poland	4.1	3.3	3.3	3.6
Hungary	4.6	2.8	2.8	3.4
Bulgaria	3.6	3.0	2.9	3.2
Lithuania	3.8	2.4	2.4	2.9
Slovenia	2.6	2.7	2.7	2.7
Slovakia	2.7	2.6	2.7	2.7
Luxembourg	2.6	2.6	2.6	2.6
Estonia	3.2	2.1	2.4	2.6
Cyprus	2.9	2.6	2.3	2.6
Croatia	2.9	2.6	2.4	2.6
Latvia	2.5	2.6	2.3	2.5
Czechia	2.5	2.2	2.1	2.3
Greece	1.8	2.3	2.0	2.0
Portugal	2.0	1.7	1.7	1.8
Denmark	2.0	1.5	1.6	1.7
Spain	1.9	1.5	1.4	1.6
UK	1.3	1.4	1.4	1.4
Netherlands	1.7	1.3	1.3	1.4
Austria	1.5	1.4	1.4	1.4
Finland	1.4	1.1	1.0	1.2
Sweden	1.1	1.0	1.4	1.2
Belgium	1.1	1.0	1.0	1.0
Germany	0.4	1.0	1.0	0.8
Italy	0.1	0.4	0.7	0.4
Euro area	1.1	1.2	1.2	1.2
EU27	1.4	1.4	1.4	1.4
EU	1.4	1.4	1.4	1.4

The report contains a range of insightful predictions and analysis; on the whole, it notes that ‘the solid performance of the labour market has helped to sustain private consumption and domestic demand’.

Although unlikely to be powered to a ‘higher trajectory’ (and slightly revised downwards from previous reports), ‘GDP should continue to grow’.

The EU is forecast to average 1.4% of GDP growth per year, with standout growth countries mostly in eastern Europe. Ireland, Greece, Portugal and Spain are all forecasting strong growth, as are France, The Netherlands and Austria.

In fact, there are no countries that aren’t forecast to grow. Good news for investors!

Europe’s economy into the 2020s: A more industry-specific economic outlook

Which sectors, and which countries are forecast to boom? We’ve cast our eyes over PWC’s European Economic Outlook 2018–2022 and pulled out some of the most important findings…

Austria, Germany and The Netherlands are earmarked as Europe’s ‘high performers’ in recent years and heading into the future. Here’s why:

• Germany — Domestic consumption is set to drive further economic growth.
• Austria — Government reforms to increase productivity are poised to boost Austria’s medium-term growth prospects.
• The Netherlands — Government investment, private consumption and strong net trade form part of a broad-based economy with solid growth forecasts.

PWC’s report also highlights several ‘boom areas’; these include technology, media & entertainment, services and financial services. The report also singles out consumer markets, industrial manufacturing and automotive as the key industries driving growth.

More generally, PWC predicts that Europe’s ‘positive economic trend is set to continue’. With the Eurozone well into its recovery and now flourishing, they forecast that ‘consumer spending is expected to continue to grow’.

Although GDP growth is predicted to slow down from its heady height of 2.1%, there is a solid economic outlook for the European continent.

Europe’s growth forecasts heading into 2021

Yes, we think that’s probably the best word to use to describe Europe’s growth forecasts for 2020 onwards — solid. Although prospects are somewhat dampened compared to previous growth forecasts, European consumers are spending more and more and economies are gradually expanding.

Eastern European countries are among some of the fastest forecasted growers, with Ireland, Greece and the Scandinavian countries also up there.

Growth in the major European economies (France, Germany, Spain) is not to be sniffed at, either. So why not grab a slice of this steadily-growing European pie? There’s cautious optimism in the air.

How do you Measure Financial Development of a Country?

Financial sector is the set of institutions, instruments, markets, as well as the legal and regulatory framework that permit transactions to be made by extending credit.

Fundamentally, financial sector development is about overcoming “costs” incurred in the financial system. This process of reducing the costs of acquiring information, enforcing contracts, and making transactions resulted in the emergence of financial contracts, markets, and intermediaries.

Different types and combinations of information, enforcement, and transaction costs in conjunction with different legal, regulatory, and tax systems have motivated distinct financial contracts, markets, and intermediaries across countries and throughout history.

The five key functions of a financial system are: (i) producing information ex ante about possible investments and allocate capital; (ii) monitoring investments and exerting corporate governance after providing finance; (iii) facilitating the trading, diversification, and management of risk; (iv) mobilizing and pooling savings; and (v) easing the exchange of goods and services.

Financial sector development thus occurs when financial instruments, markets, and intermediaries ease the effects of information, enforcement, and transactions costs and therefore do a correspondingly better job at providing the key functions of the financial sector in the economy.

Importance of financial development

A large body of evidence suggests that financial sector development plays a huge role in economic development.

It promotes economic growth through capital accumulation and technological progress by increasing the savings rate, mobilizing and pooling savings, producing information about investment, facilitating and encouraging the inflows of foreign capital, as well as optimizing the allocation of capital.

Countries with better-developed financial systems tend to grow faster over long periods of time, and a large body of evidence suggests that this effect is causal: financial development is not simply an outcome of economic growth; it contributes to this growth.

Additionally, it reduces poverty and inequality by broadening access to finance to the poor and vulnerable groups, facilitating risk management by reducing their vulnerability to shocks, and increasing investment and productivity that result in higher income generation.

Financial sector development can help with the growth of small and medium sized enterprises (SMEs) by providing them with access to finance. SMEs are typically labor intensive and create more jobs than do large firms. They play a major role in economic development particularly in emerging economies.

Financial sector development goes beyond just having financial intermediaries and infrastructures in place. It entails having robust policies for regulation and supervision of all the important entities. The global financial crisis underscored the disastrous consequences of weak financial sector policies.

The financial crisis has illustrated the potentially disastrous consequences of weak financial sector policies for financial development and their impact on the economic outcomes. Finance matters for development‐‐both when it functions well and when it malfunctions.

The crisis has challenged conventional thinking in financial sector policies and has led to much debate on how best to achieve sustainable development. Reassessing financial sector policies after the crisis in an important step in informing this process.

To help achieve this, publications such as the World Bank’s Global Financial Development Report can play a role. Chapter 1 and the Statistical Appendix of the reportpresent data and knowledge on financial development around the world.

Measurement of financial development

A good measurement of financial development is crucial to assess the development of the financial sector and understand the impact of financial development on economic growth and poverty reduction.

In practice, however, it is difficult to measure financial development as it is a vast concept and has several dimensions. Empirical work done so far is usually based on standard quantitative indicators available for a long time series for a broad range of countries.

For instance, ratio of financial institutions’ assets to GDP, ratio of liquid liabilities to GDP, and ratio of deposits to GDP.

Nevertheless, as the financial sector of a country comprises a variety of financial institutions, markets, and products, these measures are rough estimation and do not capture all aspects of financial development.

The World Bank’s Global Financial Development Database developed a comprehensive yet relatively simple conceptual 4×2 framework to measure financial development around the world.

This framework identifies four sets of proxy variables characterizing a well-functioning financial system: financial depth, access, efficiency, and stability. These four dimensions are then measured for the two major components in the financial sector, namely the financial institutions and financial markets: 

	Financial Institutions	Financial Markets
Depth	Private Sector Credit to GDPFinancial Institutions’ asset to GDPM2 to GDPDeposits to GDPGross value added of the financial sector to GDP	Stock market capitalization and outstanding domestic private debt securities to GDPPrivate Debt securities to GDPPublic Debt Securities to GDPInternational Debt Securities to GDPStock Market Capitalization to GDPStocks traded to GDP
Access	Accounts per thousand adults(commercial banks)Branches per 100,000 adults (commercial banks)% of people with a bank account (from user survey)% of firms with line of credit (all firms)% of firms with line of credit (small firms)	Percent of market capitalization outside of top 10 largest companiesPercent of value traded outside of top 10 traded companiesGovernment bond yields (3 month and 10 years)Ratio of domestic to total debt securitiesRatio of private to total debt securities (domestic)Ratio of new corporate bond issues to GDP
Efficiency	Net interest marginLending-deposits spreadNon-interest income to total incomeOverhead costs (% of total assets)Profitability (return on assets, return on equity)Boone indicator (or Herfindahl or H-statistics)	Turnover ratio for stock marketPrice synchronicity (co-movement)Private information tradingPrice impactLiquidity/transaction costsQuoted bid-ask spread for government bondsTurnover of bonds (private, public) on securities exchangeSettlement efficiency
Stability	Z-scoreCapital adequacy ratiosAsset quality ratiosLiquidity ratiosOthers (net foreign exchange position to capital etc)	Volatility (standard deviation / average) of stock price index, sovereign bond indexSkewness of the index (stock price, sovereign bond)Vulnerability to earnings manipulationPrice/earnings ratioDurationRatio of short-term to total bonds (domestic, int’l)Correlation with major bond returns (German, US)

What’s the Difference Between Asian and European FinTech?

Very common questions is: “What’s the status in Asia? How is it different to Europe? What works / what doesn’t work?”.

First of all, we should be mindful to not put Asia in one big basket. Four main regions should be considered: 1) China, 2) India, 3) South East Asia and 4) developed countries (Singapore, Japan, Korea, Australia, etc.).

Each of them has very different dynamics, consumer needs & behaviours and technology infrastructure.

As China is way ahead in financial technology innovation (some argue ahead of the UK & US), India and South East Asia are the new frontier markets for fast growth consumer finance. Developed countries offer great markets for infrastructure and efficiency B2B plays.

1. Europe: Banks are undercapitalized VS ASEAN: Banks are overcapitalized

Western and European banks have been hit hard by the Global Financial Crises. The increased cost of capital has forced many institutions to shed assets and build up large capital pools.

Technology is needed to enhance systems, replace inefficient platforms and create new revenue streams. A great fertile ground for innovation to take place.

Secondly, the GFC has pushed lots of talent in the entrepreneurial markets and brought with it knowledge, execution and resources. Successful new companies have been built on the back of that.

This is mostly not the case in ASEAN. Banks haven’t been hit by GFC dramatically; DBS made profit the past 15 years for example. There isn’t necessarily a need to innovate as soon as possible.

Also, where western banks have been challenged by the likes of alternative finance platforms and new payment gateways, ASEAN banks are rather worried about Alipay (fair enough!) than entrepreneurs taking away chunks of their pie.

2. Europe: Regulators are allowing grey zone VS ASEAN: Regulators keep a close eye

It doesn’t matter whether it is B2B, B2C, B2B2C, C2C, etc., Western regulators provide enough openness to allow a certain grey zone so that new technology and business models can take place.

ASEAN governments and regulators in contrary are closely watching the FinTech startups and are in particular strict about any model that has a ‘C’ in it.

The huge Ponzi schemes in China around the 1000s of p2p lending platforms and the US$Bn consumers lost during the Chinese stock market crash last year, has taught the authorities to be actively involved.

An additional point is that many local and regional banks are either owned or backed by sovereign wealth funds, which poses the question whether a country likes to see its assets diluted because of disruptive players?

New crowdfunding licenses in Malaysia and Singapore and new banking licenses in Indonesia and South Korea give a positive outlook. Singapore just announced their FinTech Festival.

3. Europe: A corporates’ games VS ASEAN: Many local family gigs

Money2020 has proven how many different corporates are involved in the FinTech game. From banks, tech vendors to Google and Alibaba, many are creating new technology, buying FinTech and/or investing in promising companies.

For FinTechs it is fairly straight forward to engage or work with one or many of them to have a successful route to market. You’ve got innovation departments to deal with, follow newly setup procurement processes or have an API to latch onto.

 Not the same in ASEAN. Most corporates are owned by families that have built large conglomerates over the last century. It is probably fair to say that per country you find a handful families that have huge impact on the country’s socio-economic development.

To deploy technology and scale a business, you got to have the right relationships! It can be described as a very long flirt…

4. Europe: Are real problems being solved? VS ASEAN: Too many problems without scalable solutions?

Mostly on the B2C front it seems difficult to understand the potential scale if the company passes the 20,000 early adopters.

Piggy backing on existing infrastructure, establishing up new trust in a 200-year-old industry and building great interfaces, can’t be enough. How can you build a neo bank when consumers are already familiar with the old banks?

If you take in comparison an Indonesian family that has never heard the word ‘bank’ before and has just started to think about saving cash, it is possible to introduce real FinTech.

Read Also: China: The Effects of Population Growth on Economic Growth

If the concept of ‘insurance’ is reimagined on WeChat in a completely new way (donating a travel cover via chat to your travelling mum), FinTech seems to solve real financial needs and problems. Unfortunately, we haven’t seen the talent yet in ASEAN to build scalable solutions for the many opportunities.

5. Europe: FinTech is Bottom Up VS ASEAN: Top Down Approach

All of the above can be summarised fairly easily: FinTech takes a bottom-up, more typical startup approach in Europe. ASEAN rather works top down with having the right resources and relationships in place.

Where the European Union provides a big market to scale, ASEAN consists of 10 different countries that got to be carefully separated and individually analysed.

It became clear that there is a lot of exciting technology in Europe that got to be deployed the right way in South East Asia. However, being able to open the right doors and having decent resources in place is key for success.