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8 I Companies & Markets bne May 2021
“These are countries that either used fiscal or monetary policy very successfully to mitigate the downturn (Turkey and Serbia) or else suffered especially badly last year, so that they will benefit from favourable base effects in 2021 (such as Croatia and Montenegro),” the wiiw reported.
Turkey will continue its strong performance, and the wiiw has revised upwards its forecast for this year by 1.7 percentage points. It, however, predicts growth to slow to 3.4% in 2022 and 3.5% in 2023. “Turkey and Serbia are the success stories of the pandemic so far,” said Grieveson.
For the CIS and Ukraine, where the downturn last year was far less severe than in 2009, growth is also anticipated to return strongly, with Russian GDP forecast to expand by 3.2% this year (an upwards revision of 0.7pp), Ukraine by 3.5% (an upwards revision of 1.5pp), while Belarus will grow by 1.5% (an upward revision of 2.7pp) and Kazakhstan by 3.2% (revised up by 0.7pp). Russian growth will slow to 2.7% in 2022 and 2.3% in 2023, while Kazakhstan's will accelerate
to 4.1% and 4.4% respectively.
For Central Europe, where the downturn last year was worse than in 2009, the picture is more mixed. Hungary (with 3.9% growth), Slovakia (3.6%) and Poland (3.4%) are the leaders, with Czechia behind on 2.9%. Polish growth is predicted to accelerate to 3.6% in 2022 and 4.4% in 2023.
wiiw expects the weakest 2021 real GDP growth to be in Estonia (1.2%), Lithuania (2.1%) and Latvia (2.8%). The Baltic states, which are suffering a severe second wave, have had their growth forecasts for this year revised down drastically, Estonia by 2.7 pps, Lithuania (2.4pp) and Latvia (1.6pp).
CEE (and particularly Central Europe) handled the pandemic better than Western Europe last year, with tough lockdowns and accommodating fiscal and monetary policies. It was also helped by being less reliant on the hard-hit services sector. But
Real GDP, % change versus previous year
this year the lockdowns have been less stringent than in the first wave, and worker mobility has been higher.
“In the second wave CESEE has sacrificed public health for the economy in terms of restrictions,” said Grieveson, pointing out that six of the 10 countries with the worst excess death rates in the world are in the region (Moldova, Serbia, Lithuania, Bulgaria, Macedonia and Russia). “This will unfortunately have negative economic consequences this year.”
Grieveson said the central question now was the roll-out of vaccines, with Ukraine, Moldova and parts of the Western Balkans set to take years to vaccinate their populations at current rates. “International solidarity on vaccines is going to be crucial to help the poorer parts of CESEE to exit this crisis, but unfortunately we don’t see much of that at the moment”, he noted.
Growth this year will be driven by a combination of goods and services exports, as the global economy recovers; the drawing- down of savings; better domestic sentiment, as the vaccination rates increase; and fiscal and monetary support, the wiiw reported. “Consumption will be [the] main driver everywhere in the next couple of years,” said Grieveson.
From next year, the EU Recovery funds will also start to kick in for Central Europe.
The wiiw stressed that its spring forecast was subject to great uncertainty and there were several risks to the outlook. But the wiiw analysts did not see rising interest rates as a big concern, given the way the region looks more to the ECB than the US Fed, and they argued that the current rise in inflation was likely to be short term, given the still very large output gap.
The exception they pointed to was Turkey, where debt is dollar-linked and short-term. “This is the one to watch here in terms of risks,” said Grieveson.
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