CEE with sound growth, but deficits, governance, geopolitics are risks in 2022

The economies of central and eastern Europe (CEE) have continued to rebound from last year’s pandemic-related recession, ensuring mostly improved sovereign credit outlooks for 2022, says Scope Ratings.

Scope expects broad-based, if uneven, economic expansion in the 11 EU member countries of the region (CEE-11) to continue, marking aggregate growth of 4.6 percent in 2022 – albeit slower than a 5.6 percent expansion this year. Outside the EU, Russia similarly grows a more moderate but nevertheless above-potential 2.7 percent next year, after 4.5 percent this year. Turkey slows sharply to 2.3 percent in 2022, after 10.8 percent in 2021, while Georgia normalizes to 5.5 percent economic growth next year, after 9.8 percent this year.

One constraint to further improvement in the region’s credit outlook remains still-elevated budget deficits preventing any meaningful reduction of government debt and exposing economies to further tightening in global financial conditions.

Budget deficits will have remained elevated around 5.5 percent of GDP on aggregate in the CEE-11 in 2021, although narrower than the 7.1 percent of GDP of 2020, as governments have prolonged discretionary spending in support of households and businesses. As a result, public debt ratios peak in 2021 – around levels not seen since the peaks of the global financial crisis – before stabilizing and gradually declining from 2022. Altogether, an aggregate budget deficit of the CEE-11 shrinks to 3.8 percent of GDP in 2022.

(WBJ)