Discussion panel of UniCredit at The Euromoney Forum 2023: CEE economies prove more resilient than expected

• Expectations for Bulgaria’s growth are also improving 

The atypical recession that the CEE region is going through this winter will be followed by a recovery of economies. Among the causes of the recession are the falling purchasing power and foreign demand, tighter financial conditions, and lower fiscal spending, UniCredit’s economists indicated. They participated in a discussion panel during the workshop "CEE: Weathering economic and geopolitical shocks" at the The Euromoney CEE Forum 2023, held in Vienna this week.

“A rebound is likely from 2H23 onwards if the eurozone economy recovers as well. In the first half of 2023 there will be a shallow and, hopefully, short recession. Consumers are pessimistic, but in good financial position. Industry orders are resilient and there is a good pipeline for more foreign investment in the region", commented Dan Bucsa, Chief Economist for Central and Eastern Europe, who led the panel with the participation of macroeconomics experts from the different countries where UniCredit is present. It was attended from the Bulgarian side by Christofor Pavlov, the Chief Economist of UniCredit Bulbank.

“We expect the economies in EU-CEE [1] to grow by around 0.5% in 2023 and 3.3% in 2024, slowing from 4.4% in 2022. The Western Balkans might trail the EU-CEE recovery, as it has less access to market and EU funding," explained Dan Bucsa.

The economists forecast inflation to peak in 1Q23 in both EU-CEE and the Western Balkans. Thereafter, fiscal transfers, tight labor-market conditions and higher energy and food prices could keep inflation outside target ranges in 2023-24, but inflation will slow down compared with the values observed in 2022.

CEE economies more resilient than expected

CEE economies have proven more resilient than had been expected at the start of the Russia-Ukraine war. While consumers turned markedly more pessimistic when the conflict began, their spending habits changed only gradually.

Expecting higher prices and interest rates, households frontloaded spending and borrowing in 1H22, and many exhausted the savings they amassed in 2020-21 during the pandemic. The exceptions are clustered in countries where energy prices rose at a slower pace owing to administrative caps and/or where wage growth tracked inflation (Croatia, Czech Republic, Hungary, Serbia, Slovenia).

Despite the economic slowdown in Europe, orders and economic activity remained resilient in 4Q22, while vacancies fell little from all-time highs in sectors with high employment, such as electronics, machinery and automotive. Companies in construction and services from retail to IT reported labor shortages, despite expectations that business would slow over the winter.

 

The forecast for the growth of the Bulgarian economy is also improving

In the latest economic report of UniCredit Bulbank’s economists, the forecast for the country’s real growth in 2023 rose by 0.8 percentage points to 1.3 %. This is due to export slowdown, which is slower than that expected three months ago, as well as the slower-than-expected transfer of the higher cost of credit in the eurozone to the Bulgarian economy. At the same time, the extended term of the generous scheme for support to business consumers of electricity will help not only increase exports (compared to the bank’s forecast three months ago), but also for somewhat lower inflation, albeit modestly, than what the economists anticipated in September 2022.

In 2024, the Bank’s economists forecast the real GDP growth to accelerate to 3.3 % due to weakening inflation, end of the period of deteriorating trade conditions and some reduction in global interest rates, compared to the levels expected to be reached in the developed economies in the previous year – 2023.

For the full version of Q1 2023 CEE Quarterly "Weathering geopolitical and economic shocks": Document

Expect more information about the quarterly analysis for Bulgaria tomorrow, 13 January.

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