Faster CEE Growth Faces External Headwinds - UniCredit


UniCredit economists expect the economies in EU-CEE and the Western Balkans to grow by around 1.6% in 2023 and 3.1% in 2024. GDP growth in Hungary could be 0.2%, while average annual inflation could be 17.4% this year.

In the latest CEE Quarterly “Faster growth faces external headwinds” UniCredit Research highlights a soft patch in Europe, the United States, and China as the main risk to economic growth in CEE, which could postpone the rebound in capital expenditure, exports, and consumer demand to late 2023 or 2024.  

At the same time, domestic demand could strengthen further, as wage growth will outpace inflation from the second half of the year onwards, and financial conditions will ease in 2024.

“CEE governments are reluctant to withdraw fiscal support for households, which will trigger the excessive deficit procedure (EDP) in 2024”, states the CEE Quarterly.

UniCredit economists also add that they expect small transfers from the Recovery and Resilience Facility in 2023. 

The inflation forecasts for the end of 2023 range between 6% and 9%, except in Turkey. Next year, UniCredit economists forecast slower disinflation.

“Inflation targets are likely to be missed because of higher energy prices and demand pressure on prices amid the 2023 fiscal stimulus and real wage growth. Russia and Serbia could be the exceptions”, comments Dan Bucsa, UniCredit’s chief economist for Central and Eastern Europe. All CEE central banks are expected to cut rates in 2024 below 6% in Central Europe and Serbia, to 7% in Russia, and 20% in Turkey.  

Among the main risks outlined in UniCredit's CEE Quarterly are above-target inflation in the medium term; a recession in the eurozone and the United States, and weaker growth in China weighing on economic growth in CEE; the impact of the Russia-Ukraine war on tourism on the Black Sea coast; and nationalism and Euroscepticism permeating economic policies. 

UniCredit's full CEE Quarterly report can be accessed here.

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