Richard Grieveson Deputy Director wiiw
Richard Grieveson, Deputy Director at The Vienna Institute for International Economic Studies (wiiw)

CESEE economic recovery to be strong

In economic terms, Central, East and Southeast Europe countries performed much better than Western Europe in 2020.

4 mins read

In the 23 countries of Central, East and Southeast Europe (CESEE), GDP is expected to grow by 3.8% on aggregate this year, the Vienna Institute for International Economic Studies (wiiw) said.

The Austrian think tank for first-hand expertise on the CESEE region, CIS and the Balkans, in its spring economic forecast for Eastern Europe predicts that most countries in the region will regain their pre-Covid-19 output levels by the end of this year. The wiiw had predicted 3.1% GDP growth in its autumn forecast.

Across CESEE in 2021 and beyond, growth will be driven by a combination of exports of goods and services as the world economy recovers, the drawing-down of savings, better domestic sentiment and more fiscal and monetary support, according to the institute’s report titled “Darkest before the dawn? Economic Analysis and Outlook for Central, East and Southeast Europe”, by Richard Grieveson et al.

Montenegro, which suffered comfortable CESEE’s deepest contraction in economic activity in 2020, with GDP shrinking by 15.2%, is projected to post a GDP growth of 6.5% in 2021 – one of the strongest economic recoveries among the 23 countries in the region. The country’s economic growth will be boosted by tourism and remittances, WIIW noted.

Turkey’s GDP is expected to expand by a solid 5.8% in 2021  but the growth is forecast to slow down by 2022, either due to high real interest rates to get inflation under control, or a lira collapse and balance of payments crisis. Turkey was the only country in the region which recorded a positive economic performance (1.8%) in 2020.

Serbia which finished 2020 as one of the best-performing European economies, is projected to post a 5% growth in 2021. Real GDP fell by just 1% in 2020, fuelled by strong public spending. Croatia will post solid economic growth of 4.5%, supported by EU aid. GDP contracted by 8.4% in 2020.

Albania’s economy is seen growing by 4.5% over the medium term this year, while North Macedonia and Moldova are forecast to expand by 4.1% and 4%, respectively.
North Macedonia’s pre-crisis level of activity will be reached at the beginning of 2022, WIIW said.

Moldova’s 7% drop in GDP in 2020 was mainly the result of contracting household demand and an extremely bad harvest. The economies of Romania, Slovenia and Bulgaria are seen growing by 3.8%, 3.6%, and 2.5% in 2021, respectively.

The Romanian economy weathered the 2020 COVID-19 storm better than many others in the EU. Restrictions were less severe than elsewhere during the winter, and so the full-year contraction of GDP remained below 4%. The recovery in 2021 will not be fast but huge inflows of EU funds could boost investment in the coming years, the think tank commented.

In Bulgaria, where the negative macroeconomic impact of the Covid-19 in 2020 was moderate, GDP growth is expected to be slightly higher in 2022 and 2023.

Slovakia’s GDP dropped by 5.2% in 2020. This year the economy is expected to recover by 3.6%; in the following years the inflow of EU funds should foster gross fixed capital formation.

In Bosnia and Herzegovina the economic recovery will be delayed. The COVID-19 caused the worst recession in the Balkan country since the Bosnian war, with an estimated GDP decline in 2020 of 5%.

Although Belarus experienced only a mild recession in 2020, the economic outlook is also rather bleak, the Vienna-based institute said.

For Czechia the institute is more optimistic as economic fundamentals remain strong: the level of public debt is low, foreign-exchange reserves are very high and the trade balance is in surplus. Positive growth will return in 2021.

For Estonia, the wiiw has downgraded its GDP growth forecast to 1.2% in 2021. The economy is expected to return to its pre-crisis path only in 2022, with a 3.8% growth rate, followed by 4.3% in 2023.

Hungary’s GDP dropped by 5% in 2020, due mostly to declining net exports, but also, to a smaller extent, to shrinking investment and household consumption. The key issues for a recovery are the early revitalisation of international value chains in the automotive industry, resilience of the small and mediumsized enterprise (SME) sector and restoration of the pre-crisis spending propensity of households.

Kosovo’s economy contracted by 5% in 2020, but growth will return to 4.5% in the medium term, supported by domestic and external demand. Kosovo, unilaterally declared independence from Serbia in February 2008. It has been recognised by the United States and major European Union countries, but Serbia, Russia and a significant number of other countries—including several EU members—did not.

wiiw CESEE spring economic forecast 2021

In Kazakhstan, after a relatively moderate real GDP decline of 2.6% in 2020 (thanks to a large anti-crisis fiscal package), economic recovery of 3.2% is expected for 2021. Economic growth is likely to accelerate to above 4% in 2022-2023, driven by consumption, exports and investment.

Latvia’s economy declined by 3.6% in 2020. In 2021 wiiw expects GDP to increase by 2.8%; this will be followed by strong growth of 4.2% in 2022 and a somewhat slower upswing of 3.8% in 2023.

For Lithuania, the institute 2021 expects real GDP to grow by 2.1%, followed by a faster upswing of 3.8% in 2022 and 3.1% in 2023.

In Poland, where the decline in GDP in 2020 turned out to be quite shallow, expansive monetary and fiscal policies are likely to continue, but the recovery in investment will be muted at best. Improvements in 2021 and beyond are possible, but not guaranteed.

The Russian economy declined by only 3.1% last year, of which 1 pp was due to oil production cuts. In the baseline scenario, wiiw projects a recovery of 3.2% this year, while growth should gradually revert to the long-term average of around 2% in the years thereafter.

Ukraine’s GDP contracted in 2020 by only 4%, largely because of favourable conditions in key export markets and resilient household incomes. In 2021 the economy will return to growth, supported by a rebound in private consumption and a revival in investment

In economic terms, CESEE performed much better than Western Europe in 2020. Average weighted real GDP fell by 2.3% in 2020, only around a third of the euro area’s decline (-6.8%) over the same period.

Established in 1972 The Vienna Institute for International Economic Studies (wiiw), conducts research, provides policy recommendations, and publishes books/articles on a wide range of topics related to international economics. According to the 2020 Global Go To Think Tank Index Report  wiiw retained number 3 in category ‘Top International Economics Think Tanks’.

Richard Grieveson is Deputy Director at the Vienna Institute for International Economic Studies (wiiw) and Research Associate at the Diplomatic Academy of Vienna.  He specialises in the economies of Central, East and Southeast Europe, with a particular focus on Turkey and the Western Balkans.