Page 46 - bne Magazine August 2022

46 I Central Europe bne August 2022
Tougher times ahead for Emerging Europe
Clare Nuttall in Glasgow
Expectations of a quick end to the war in Ukraine followed by a rapid recovery from the economic shock across Emerging Europe proved to be unfounded. Instead, with no end to the war in sight, spiralling inflation is set to drag down growth across Emerging Europe in the second half of 2022 and into 2023, according to the latest set of forecasts from the Vienna Institute for International Economic Studies (wiiw).
Growth projections for virtually all
the Emerging Europe countries have been lowered since Russia’s invasion of Ukraine in February, and now range from 4.5% in Slovenia to -38.0% in Ukraine.
wiiw forecasts that most of the region will avoid an economic recession this year, but this outlook is subject to considerable downside risks.
Across the region, the most resilient to the crisis are the 11 EU members of the
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region, where average growth of 3.3% is expected this year.
Growth in the aspiring EU members of the Western Balkans is expected to come in
at a more modest but still positive 2.9%, while Turkey is heading for 2.7% growth.
On the other hand, sharp contractions are expected in both Russia and Ukraine, as well as Russia’s closest ally Belarus, which is also targeted by Western sanctions. Moldova, located next to Ukraine and with part of its territory controlled by Russia-backed separatists, is heading for a contraction of 1%.
“The region has been showing really remarkable resilience in its recovery from the COVID pandemic shock, but things are unfortunately changing for the worse,” said Olga Pindyuk, economist at wiiw and lead author of the summer forecast, on a webinar to present the results on July 6.
Rising inflation
Specifically, she said, “inflation has become a major challenge globally” and there is a high level of uncertainty with negative risks continuing to mount.
wiiw has had to revise upward its inflation forecasts for 2022-23 for most countries in the region, as wiiw economists now expect “inflation to be more persistent and last longer than previously thought,” Pindyuk said.
Inflation was in double digits across all 23 countries included in the wiiw report from Central Europe to Central Asia, with only one exception: Slovenia. While Turkey’s rampant inflation is many times higher than that of other countries in the region – it’s expected to come in at around 68% this year – the eastern EU members are heading for inflation at an average of around 11%.
wiiw’s report identifies the war as being behind the seemly unstoppable rise in