Page 8 - CE Outlook Regions 2022

This will make inflation that much more difficult to restrain and hurt export
competitiveness, creating current account deficits and currency

depreciations. The Hungarian forint has already lost 10% of its value in
2019 and 2020 versus the euro, making it one of the worst-performing
currencies globally.

As well as rising interest rates and wages and the continuing pandemic,

many of the region’s biggest export industries – notably the automotive
sector – have also been struggling with supply bottlenecks and rising input
prices caused by the shortage of semiconductors and other components

and materials. This makes economic growth even more fragile – as it will
be based largely on domestic consumption – and more prone to generating
external deficits.

These overheating risks are greatest in Poland and Hungary, where the
populist governments are stoking pre-election booms and will worry about
belt tightening afterwards. Viktor Orban’s government has unleashed the
biggest package of handouts and cheap loans in the region, leading to a

forecast budget deficit of 8% of GDP last year.

Both countries eventually risk hard landings, especially if the international
financial environment becomes less forgiving and more volatile, as it is
likely to do. This should all give Brussels more leverage – if it keeps its

nerve – as it withholds recovery fund money to force Warsaw and
Budapest to abide by EU values.

1.0 Political outlook

1.1 Politics - Czech Republic

Czechia will enter 2022 with a new government of the coalition
SPOLU (Civic Democrats, Christian Democrats and TOP09) – which
won the general election in October 2021 by 0.7 percentage point
over the ANO party of billionaire populist Andrej Babis – and the
coalition of the Czech Pirate party and STAN (Mayors and
Independents). Incoming premier Petr Fiala, chair of the Civic

8 CE Outlook 2022 www.intellinews.com