Page 11 - SE Outlook Regions 2023

expansion had started to slow.

The region’s largest economy, Romania, saw its growth decelerate
slightly during 2022 but to a still robust 4.6% annual rate, from 5.1% in
2021. But it is expected to grow by only 2-3% in 2023 and to recover
marginally towards growth rates of not much above 4% in the coming
years.

Like other countries, Romania is affected by the recession in Europe;
Germany and other Central and Western European countries are
important markets for goods produced across the Southeast Europe
region. Another factor for the EU members is the funding under the EU
budget and under the Resilience Facility.

By contrast, it was a terrible year for Moldova, where the economy is
expected to have contracted by 4% or more in 2022 — much worse
than anticipated by the government, international financial institutions
(IFIs) and independent analysts. Moldova experienced difficulties on
multiple fronts — from disruptions to trade caused by the war in
neighbouring Ukraine, lower demand from Western countries as
inflation took its toll on spending and a poor harvest due to drought.
Already one of the poorest countries in Europe, Moldovans’ standards
of living have been eroded dramatically by inflation that soared to over
30%. On top of this, Moldova is still hosting tens of thousands of
Ukrainian refugees.

Rampant inflation

While inflation in Moldova was exceptionally high, inflation across the
region accelerated sharply during most of 2022 due the economic
effects of the Russian war in Ukraine. It was also well into the double
digits in Bulgaria, Romania, Serbia and some other countries.

This prompted central banks to hike rates across the board. In an early
sign of the decrease in inflation expected in 2023, however, some
countries have seen a modest slowdown in price growth in the final
months of 2022.

With the hike in prices, the consumer spending that has been an
important driver of growth in the past slowed as disposable incomes
were whittled away.

It also had a damaging impact on tourism in Montenegro, where Prime
Minister Dritan Abazovic warned early in the season that prices were as
high as on France’s Cote d’Azur. Elsewhere in the region, however,
rising prices across Europe benefited lower-cost destinations such as
Albania, which saw a record season amid the arrival of thousands of

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