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bne August 2024 New Europe in Numbers I 69
wiiw sees brighter growth prospects for ‘resilient’ Emerging Europe
bne IntelliNews
Growth is gaining momentum across most of Central, Eastern and Southeast Europe, despite a challenging international environment, according
to the latest Summer Forecast from the Vienna Institute for International Economic Studies (wiiw).
This growth is mainly driven by a strong rise in real wages, leading to higher private consumption, while EU members are showing resilience in the face of Germany's economic downturn.
"The main driver of growth is the sharp rise in real wages, which is stimulating private consumption, even if a not inconsiderable proportion of the additional disposable income is being saved," says Vasily Astrov, economist at wiiw and lead author of the Summer Forecast.
The industrial sector in the region’s EU member countries remains in recession, primarily due to the deep crisis in German industry. "This limits the growth prospects of all those countries that are part of the industrial cluster around Germany," said Astrov.
wiiw forecasts average growth of 2.6% for the EU members of the region in 2024, increasing to 3% in 2025, outpacing the euro area, which is projected to grow by 0.6% this year and 1.6% next year.
Slovenia and the Visegrád states — Poland, Czechia, Slovakia, and Hungary — are expected to grow by an average of 2.6% this year, accelerating to 3.1% in 2025. Poland leads growth among the Eastern EU members, with expected growth rates of 3.3% this
year and 3.6% next year.
Particularly, slow growth is expected in the Baltic states and Czechia, with Estonia’s economy expected to expand by a mere 0.2% in 2024.
are also forecast to see robust
growth of 3.0% in 2024, bolstered by NextGenerationEU coronavirus recovery funds and, in Croatia's case, a thriving tourism sector.
The Western Balkans are projected to grow by an average of 3.2% this year, with Turkey expected to expand by 3.4%.
Some of the strongest growth is in
the small Western Balkan economies; Montenegro, Albania, Kosovo and Serbia are projected to be among the five fastest-growing countries this year, along with Kazakhstan, the only Eurasian economy included in the report.
Ukraine's recovery is anticipated to slow down, with a revised growth forecast of 2.7% for 2024, down by 0.5 percentage points from the Spring Forecast. "Half of Ukraine’s energy infrastructure has already been destroyed in Russian missile attacks, and the destruction is continuing. Without electricity, however, the Ukrainian economy will struggle to recover," said Olga Pindyuk, Ukraine expert at wiiw.
Conversely, Russia's growth forecast has been revised upward by 0.4 percentage points to 3.2% for 2024, driven by substantial government spending on the war, which amounts to around a third of the federal budget. "This is leading to a redistribution
from the top to the bottom, which unfortunately also fosters sympathy for the war among the population," said Astrov, who is also wiiw’s Russia expert.
The prospect of US sanctions against third-country banks aiding Russia in circumventing Western sanctions is begin- ning to impact Russian imports, particu- larly for dual-use goods like microchips. "Ultimately, ways will be found to circum- vent these sanctions, but they will make it more expensive and difficult for Russia to procure such important high-tech components from the West," Astrov said.
Geopolitical risks remain a significant concern. "A Donald Trump victory in the US presidential election in November could intensify the trade war between the US and China, and possibly also start one with the EU. This would hit
the small, open economies of Central Eastern Europe particularly hard," warned Astrov. Additionally, a potential far-right government in France led by Marine Le Pen's National Rally could complicate Western support for Ukraine.
“That concern is particularly relevant for Ukraine, since a new government in Paris led by the right-wing populists could – at the very least – make it extremely difficult for the country
to receive the Western support it so urgently needs,” says the report.
The Southeast European EU members
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