Page 4 - CE Outlook Regions 2023

In Poland, relations with the EU could worsen in the short term ahead
of the elections this autumn, but if voters then unseat Jaroslaw
Kaczynski’s Law and Justice Party the country could realise the
promise of its new geopolitical position by becoming a key player in
Brussels.

In an optimistic scenario, if both countries head back to the political
mainstream, the whole region could finally become much more
embedded in the EU; however, in a pessimistic scenario, Budapest and
Warsaw could once more unite against Brussels and the region could
instead suffer a new wave of self-defeating populism as the cost of
living crisis bites.

Turning to the economic outlook, Central Europe is currently facing
rocketing inflation and recession, at a time when the region has barely
emerged from the downturn caused by the COVID-19 pandemic.

As a region heavily dependent on Russian energy, Central Europe is
entering the downturn earlier than Western Europe. Rises in energy
prices – in large part due to the Ukraine war and the sanctions on
Russia – have pushed up inflation, increased external deficits,
squeezed businesses and households, and pushed most economies
into recession. The region’s downturn is forecast to last until the middle
of this year, followed by feeble growth.

The Baltic states already entered recession (two consecutive quarters
of quarter-on-quarter negative growth) around the middle of 2022 and
are not expected to emerge from it until mid-2023.

Czech GDP growth turned negative in Q3 and is expected to also be
negative in Q4, meaning the economy is probably already in recession.
According to ING, the country will suffer the deepest recession in the
region.

Hungarian growth also already turned negative in Q3 and is expected
to be negative in Q4, putting the economy in recession. It is then
forecast to be close to zero for much of 2023.

Poland could suffer negative growth in Q1 but is currently predicted by
most economists to return to growth in Q2. This should help the populist
Law and Justice Party ahead of the elections in the autumn, particularly
if the government and its central bank try to engineer a pre-election
boom as in Hungary.

Slovak growth remained in positive terms in Q3 and the economy is
currently forecast to escape recession but with minimal growth.

At the same time, Central Europe is suffering the highest inflation in the

4 CE Outlook 2023 www.intellinews.com