We believe Serbia will be least affected due to its heavily investment-driven cycle. Bulgaria and Croatia, which are more dependent on tourism, will fall between these two extremes, while Romania, due to its past pro-cyclical policies, will suffer the most. All of this assumes that the disruption caused by the Covid-19 pandemic begins to dissipate towards the end of the second quarter of 2020.
- Croatia: GDP growth revised down by 1 percentage point, from 2.2% to 1.2%, inflation from 1.6% to 1.0% and EUR/HRK end of year from 7.45 to 7.55
- Bulgaria: growth revised from 3.0% to 2.1%, annual inflation from 3.4% to 2.7%
- Serbia: GDP growth revised from 4.7% to 3.9%, annual inflation from 2.3% to 1.8%, year-end EUR/RSD at 118.00 from 117.2
- Romania: growth is revised from 3.6% to 2.1% and annual inflation from 3.0% to 2.8%. We leave the EUR/RON forecast unchanged at 4.8500 at the end of the year.
After the 2008–2009 economic crisis, the Balkan region experienced a prolonged economic recession, with growth rates anemic by regional standards. However, with the help of the IMF, growth resumed in most cases in 2011-2012 and gradually accelerated (with some hiccups for Serbia and Croatia), pushing GDP growth to the level or even above, of its potential in recent years. In the same vein, 2020 promises to be another year of robust catch-up for the Balkan economies. In 2019, Romania and Serbia exceeded expectations for GDP growth, growing by 4.1% and 4.2% respectively, while Bulgaria’s growth rate of 3.7% and 2. 9% for Croatia was generally in line with our vision and consensus. And with the exception of Serbia, which we expected to accelerate this year, the growth prospects for 2020 seemed barely more modest compared to 2019, with Romania at 3.6%, Bulgaria at 3.0% and Croatia at 2.2% – more in line with their long-term potential.
However, as the best-laid plans of mice and men often go astray, the Covid-19 outbreak has quickly changed the game, leading us to a point where the term “recession” does not seem inappropriate. This does not mean that we are there yet and – with a little luck and political wisdom – we see a good chance for the four Balkan countries to avoid such a scenario.
