Page 7 - CE Outlook Regions 2022

is expected to try to stagger on as long as it can, given the lead in the
opinion polls for the two rival left-wing opposition parties of onetime allies

Robert Fico and Peter Pellegrini. Unless the government can somehow pin
corruption on top figures in the preceding Smer government in which both
premiers served, its chances of staying the distance and retaining power at

the next election look slim.

In Czechia all eyes will be on the candidates for the January 2023
presidential election, with a real risk that Andrej Babis, the agro-chemical
billionaire and former premier, will triumph. He may be given a helping

hand if the new centre-right government goes too fast in cutting the budget
deficit. This could also enable Babis’ “technocratic populist” ANO party to
return to power at the first attempt at the next general election.

In Latvia, the October general election is anticipated to increase political
fragmentation, with a raft of new populist parties jostling to enter the
Saeima. Populism is also on the rise in neighbouring Lithuania as well as
Estonia, where the far-right EKRE party is riding high over migration fears.

Macro-economic environment
Over the past two years Central European governments have been helping

businesses and employees cope with the economic impact of the
pandemic; now, as their economies begin to recover fast, they are starting

to be concerned about the rise in budget deficits and public debt and are
considering tightening their belts, even though the pandemic is still far from
over.

On top of this challenge, businesses and households are coming under

new pressure from rising inflation, energy prices and interest rates, which
are crimping margins and hurting living standards. Budapest and Warsaw
are now imposing price caps on energy and other staples, but these moves

will only have a short-term effect. Inflation is expected to hit 10% in Poland
in February.

The three independent central banks in the region are particularly worried
by the yawning deficits and rising inflation and have been hiking interest

rates, creating tension with governments and leading to an inconsistent
policy mix. What especially concerns the central banks is that there is a
risk that the return of higher inflation rates will push inflationary

expectations upwards, generating a vicious cycle of wage-push inflation.
Wage growth is also fuelled by the region’s tight labour markets, worsened
by migration to Western Europe and low birth rates.

7 CE Outlook 2022 www.intellinews.com