Home Tourism bne IntelliNews – Slowdown in EBRD projects in Central Europe, robust growth in Eurasia

bne IntelliNews – Slowdown in EBRD projects in Central Europe, robust growth in Eurasia

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The European Bank for Reconstruction and Development (EBRD) forecasts robust economic growth in Central Asia, the Caucasus and Turkey for 2023, offset by weaker performance in Central and South-Eastern Europe.

In 2023, growth in the EBRD regions, which also includes the South and East Mediterranean (Semed), is expected to decelerate to 2.4%, down from 3.3% recorded in 2022, according to the latest bank report. Regional Economic Outlook report released early on September 27.

However, there is optimism for 2024, with growth expected to rebound to 3.2% as inflation gradually eases. These statistics represent a slight adjustment from the May forecast, with an upward revision of 0.2 percentage points (pp) for 2023 and a downward revision of 0.2 pp for 2024.

Beata Javorcik, chief economist at the EBRD, highlights divergent growth trends within the region. The strong economic performance of Central Asian countries contrasts with the relatively weaker growth observed in Central European and Baltic countries. These disparities can be attributed to changes in energy prices, inflation levels and changing business trends.

Slowdown in CEECs

In Central Europe and the Baltic States, growth forecast for 2023 is just 0.5%. This is a significant decline from the robust 3.9% growth recorded in 2022, but a gradual recovery expected in 2024, when growth is expected to rebound to 2.5%.

“We have kept our forecast for Central Europe this year unchanged since May, but we expect a weakening outlook for 2024. This is linked to weakness in Western Europe, particularly Germany, which is hitting our economies hard. countries due to their dependence on exports,” Javorcik said in an interview with bne IntelliNews.

“Even though natural gas prices have returned to pre-war levels, they are four times higher than in the United States. This means that the competitiveness of Western Europe, including Germany, will erode. The slowdown in China does not help, given that China is an important market for Germany. Added to this is an erosion of competitiveness in some Central European countries,” Javorcik added.

Additionally, as Javorcik pointed out, Central European countries rely heavily on the automobile industry, which is transitioning from combustion engines to electric vehicles.

Broken down by country, the EBRD has revised downwards its forecasts for four Central European economies this year, Estonia, Hungary, Lithuania and Slovakia. However, for 2024, it revised its forecasts downwards for almost all countries in the region, with the largest downward revisions being 0.8 percentage points for Estonia and Slovakia.

In the southeast of the European Union, comprising Bulgaria, Greece and Romania, a less favorable external environment combined with the impact of rising inflation is expected to result in a growth rate of 2% for 2023, with a slight improvement to 2.8% forecast for 2024.

In the Western Balkans, trade with eurozone partners declined at the start of 2023, but the resilience of the tourism sector partially offset this. GDP is expected to grow by 2% in 2023, with a more robust expansion forecast at 3.4% in 2024.

Industrial shift

During the winter of 2022-23, emerging Europe experienced a significant drop in its gas consumption, of more than 20%, underlines the EBRD report. This is mainly due to the decrease in gas supply from Russia, which has led to a considerable rise in energy prices. Although oil and gas prices have now returned to lower levels than before the Ukraine conflict, they continue to exert downward pressure on the region’s economic growth.

As energy prices rise, European industry has gradually moved away from gas-intensive sectors, such as building materials, chemicals, base metals and paper, towards less carbon-intensive sectors, such as electrical equipment, automobile manufacturing and pharmaceuticals.

This affected the region’s overall industrial production and contributed to slower-than-expected economic growth.

However, according to Javorcik, the change should not be permanent. “What we are seeing in the data is a temporary change. There has been no shift of labor from gas-intensive industries to other industries. Companies appear to be holding back workers waiting for better times, which is exacerbating tensions in labor markets,” she said.

Strong growth in Central Asia and Turkey

Further east, the economies of Eastern Europe and the Caucasus are grappling with the far-reaching consequences of the conflict in Ukraine. The region’s economic outlook projects a GDP growth rate of 1.9% for 2023, with an increase to 3.1% forecast for 2024.

In Ukraine, forecasts call for a GDP growth rate of 1% for 2023, followed by a modest rebound to 3% in 2024.

In contrast, Central Asia is poised for robust growth, with an expected rate of 5.7% in 2023 and accelerating to 5.9% in 2024. The main drivers of growth in this region include government spending, increased demand for raw materials from China, increased trade interactions and exports to Russia, as well as remittances and business relocation from Russia. The fastest growth is expected in Mongolia and Tajikistan over the next two years.

Most EBRD forecasts for the region have been unchanged since May, although the development bank raised its 2023 and 2024 forecasts for Kazakhstan and lowered them for Kyrgyzstan.

In Turkey, growth is expected at 3.5% in 2023, with a further moderation to 3% in 2024. The upward revision of 1 percentage point in the forecast is attributed to pre-election fiscal stimulus measures. However, growth is expected to slow in the second half of the year.

In the Semed region, production is expected to grow by 3.7% in 2023, followed by growth of 3.9% in 2024. Downward revisions from previous forecasts stem from delays in the implementation of structural reforms and increased fiscal and external vulnerabilities. The latest forecasts do not yet take into account the impact of the earthquake in Morocco.

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