Scope upgrades 2023 growth f'cast for EU members in CEE to 1.7%

The economic output of the CEE-11 countries, including Bulgaria, Croatia, Romania and Slovenia, is expected to grow by 2.5% in 2024, Scope said in its Sovereign Mid-Year Outlook 2023.

The gradual decline in high headline inflation, fueled by the fall in energy prices, is offset by tighter monetary policies and weak external demand. As a result, the recovery is set back, with significant economic risks for 2023, it commented.

Inflation in most CEE-11 countries is seen to slow to single digits by the end of this year, with the average inflation forecast at 11.8% in 2023 and then expected to decelerate to 5.6% in 2024.

"Fiscal sustainability is a concern. Regional governments continue to navigate the challenge of balancing fiscal prudence with a need for supporting economies amid uncertainty, such as support for core economic sectors, alleviating energy-related stress, infrastructure investment, and addressing meaningful defence needs within the current environment," Scope said.

The CEE-11 average budget deficit is seen at 4.1% of GDP this year compared to 4.0% in 2022, with Croatia forecast to post the region's lowest, at 0.8% of GDP. Next year, the average budget deficit in the CEE-11 region is projected to fall to 3.4% of GDP.

Bulgaria's sovereign rating is dependent on making progress to adopt the euro by 2025, which has been delayed due to political instability, with five elections in two years, and challenges meeting the price-stability criterion. However, the newly-formed government is expected to continue reform efforts for euro accession, Scope said.

Meanwhile, Croatia's euro-area accession on January 1 was boosted by its economic convergence progress, improving the resilience of its BBB+ credit ratings. Additionally, a favourable trend in government debt supported the rating.

Below are Scope's real GDP growth projections (pct) for the four EU member states from Southeast Europe (SEE):

Source: Scope Ratings.