December 14 (SeeNews) - The economic growth of the EU's 11 member states in Central and Eastern Europe (CEE-11) will slow to 4.6% next year and further on to 4.1% in 2023 from an estimated 5.6% in 2021, Berlin-based Scope Ratings said on Tuesday.
Recovery from the pandemic recession is underway across the region but its pace continues to vary contingent upon economies’ underlying strengths and weaknesses, Scope said in its latest Central and Eastern Europe Sovereign Outlook 2022.
“While capacity utilisation in industry is back at pre-pandemic levels, services sectors have not bounced back as fully, with this latest wave of coronavirus representing an added setback. Supply-side interruptions particularly affect countries with more open economies,” Scope said.
New waves of Covid-19 infection and associated restrictions of economic activity, lingering supply-chain disruptions, elevated gas and electricity prices represent challenges for consumers and producers, the report reads.
Consumers and companies are increasingly adopting manners of conducting business during intermittent restrictions, vaccination has advanced, even though the percentage of fully vaccinated in CEE is lower than that in western Europe, but the region remains far from economically homogenous despite broad increases of living standards over the past decade, and the pace of recovery is seen continuing to vary contingent upon economies’ underlying strengths and weaknesses, Scope noted.
In Romania, near-term budget risks have been reduced after the government froze state pensions and wages during 2021, while a prolonged phase of political instability has elevated the risk of fiscal slippage and economic instability, according to Scope.
Policy choices and stability of the new coalition government in Bulgaria are crucial for medium-run growth and fiscal outlooks as well as meeting a sought January 1, 2024, target date for accession to the euro area. Critical factors include strengthening the rule of law, tackling corruption and judicial independence, and developing the institutional capacity required for more effective spending of EU funding. In addition, the Bulgarian government’s success in meeting euro-area convergence requirements during this Exchange Rate Mechanism II trial phase is critical, the report reads.
Croatia’s credit outlook benefits from an ongoing process towards euro adoption, including progress under commitments of the EU’s Exchange Rate Mechanism II, assisting an upgraded accession objective of authorities on January 1, 2023. However, significant credit challenges remain, including the need to consolidate the budget to reduce an elevated government debt burden, projected around 84% of GDP in 2021, Scope noted.
Slovenia’s pre-crisis reform of the labour market, financial-sector privatisation and advancements of external-sector competitiveness have cushioned the economy over the coronavirus crisis. The country is seen running current account surpluses medium run. An important challenge is raising labour productivity, given adverse demographics constraining fiscal flexibility.
Scope's real GDP growth baseline projections for Bulgaria, Croatia, Romania, Slovenia follow (in pct):
|
2020 |
2021 |
2022 |
Bulgaria |
3.0 |
4.8 |
4.0 |
Romania |
7.2 |
5.0 |
5.0 |
Croatia |
8.8 |
4.8 |
4.0 |
Slovenia |
6.4 |
4.5 |
3.5 |