GDP in CEE to fully recover crisis losses by 2022

The economies of Central and Eastern Europe (CEE) will return to pre-crisis levels of output by 2022 at varying speeds, helped by renewed export growth, pent-up domestic demand, and resumed flows of foreign direct investment, says Scope Ratings.

Front-loaded investment of Next Generation EU funds and governments’ success in spending EU funds productively will be key factors impacting the economic outlook of the 11 EU member countries of CEE (CEE-11).

Scope projects a solid recovery in CEE-11 of 4.6 percent this year before 4.7 percent growth in 2022.

“The Covid-19 shock has demonstrated the region’s enhanced economic resilience, boding well for a robust recovery assuming health authorities remain on track to vaccinate around 70% of the population by year-end across many countries of the region,” Giacomo Barisone, head of the sovereign and public sector ratings at Scope, said.

Scope expects regional governments to maintain budget stimulus, underpinning economic recovery even at the cost of higher near- to medium-run public debt. One possible headwind is surging inflationary pressures, which could result in faster-than-expected tightening of monetary policy, higher interest rates, and a rise in debt-servicing costs.

The crisis has highlighted structural labor market challenges, exacerbating existing societal inequalities. 

“Reforms addressing tight labor markets, shortages of skilled labor, and improving labor force participation rates will prove vital for sustaining recovery,” Levon Kameryan, an analyst at Scope, said.

In addition, the regional recovery is set to remain uneven, partly reflecting recovery from recessions of varying magnitudes during 2020. Manufacturing production is near pre-pandemic levels, but services sectors have not bounced back as fully. Countries such as Croatia, which rely more on tourism, face a more gradual recovery given residual pandemic-related travel restrictions in contrast with countries with more diversified economies such as Poland.

Scope’s updated growth forecasts for CEE-11 are: Poland: 4.9 percent (2021), 4.5 percent (2022); Czech Republic: 3.8 percent, 4.5 percent; Hungary: 4.5 percent, 5.5 percent; Slovakia: 4.3 percent, 4.7 percent; Romania: 4.8 percent, 4.7 percent; Bulgaria: 5.4 percent, 4.7 percent; Croatia: 5 percent, 5.8 percent; Slovenia: 4.5 percent, 4.6 percent; Lithuania: 2.7 percent, 3.8 percent; Latvia: 3.6 percent, 5.2 percent; and Estonia: 3 percent, 4.5 percent.

(WBJ)