Page 46 - bne Magazine February 2023

46 I OUTLOOK 2023 bne February 2023
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 bargain-seekers.
Debt ratios continued to decrease in 2022 after the
hikes in borrowing and economic slumps during the pandemic. Debt had reached high levels in Albania, Croatia and Montenegro in particular. However, with the economic slowdown from late 2022, concerns have again
been raised about the sustainability of Montenegro’s debt burden, and the threat to fiscal stability from the borrowing envisaged in 2023.
Input costs soar
The war and sanctions hit a variety of important sectors, including energy, grain and metals.
With much of the gas supplied to Southeast Europe coming from Russia, governments have been scrambling to diversify their sources, looking to alternative suppliers such as Azerbaijan. This prompted a speeding up of pipeline and other infrastructure projects.
Croatia’s strong performance so far has been down to a combination of its relative resilience to the energy crisis, thanks to a large extent to its construction of the offshore floating liquefied natural gas (FLNG) terminal on the island of Krk, and partly to the continued post- Covid rebound of its tourism sector. The FLNG terminal contributes to Croatia’s energy independence, and the country has ambitions to become an LNG hub for the region. Zagreb intends to double the capacity of the terminal from 2.9bn cubic metres to 6.1 bcm.
Romania is also seeking to develop its offshore gas resources in the Black Sea. BSOG has already started production in the Black Sea and will add 1 bcm of gas to the country’s depleting production (under 10 bcm per year) and OMV Petrom/Romgaz should begin production in 2027.
Serbia has benefited from its good relations with Russia, securing a new gas supply deal on favourable terms in spring 2021. Other countries have fared less well; Gazprom cut off Bulgaria’s supplies in April when former prime minister Kiril Petkov refused to pay in rubles, while deliveries to Moldova were cut in autumn 2022, apparently for political reasons, and there is considerable uncertainty about how much the country will receive, or even whether.
Metals industries across Europe were hit by the higher energy prices, with some announcing production cuts as prices started to rise post-pandemic but before the invasion of Ukraine. Among those affected in Southeast Europe are aluminium producers such as Romania’s Alro, Slovakia’s Slovalco and Talum in Slovenia, as well as KAP in Montenegro.
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