Scope raises 2022 economic growth forecast for EU members in CEE to 3.8%

Scope raises 2022 economic growth forecast for EU members in CEE to 3.8%

The real economy of the 11 EU member states from Central and Eastern Europe (CEE-11) will expand by 3.8% on average in 2022 although it will remain below baseline projections, Berlin-based Scope Ratings said on Monday, upgrading its spring forecast of an average growth of 2% to 3%.

The economic output of the CEE-11 countries, including Bulgaria, Croatia, Romania and Slovenia, is expected to grow by 3.3% in 2023, Scope said in its latest report, Central and Eastern Europe Sovereign Mid-Year Outlook 2022, slashing its April projection for 4.1%.

Short-terms risks for the region continue to be defined by the Russia-Ukraine war and include rising, persistent inflation, supply chain disruptions and commodity shortages, the uncertainty of future energy imports from Russia as well as potentially growing trade gaps and budget deficits, Scope noted.

"Russia is likely to expand retaliatory economic measures against EU countries via further limiting or halting energy supplies," the ratings agency said, adding that any abrupt and prolonged suspension of Russian gas delivery will affect near-term growth and worsen inflation levels.

Average inflation in the CEE-11 countries has already passed the 10% threshold, but is likely to begin cooling down in 2023 as central banks in the region start reversing earlier rate increases.

"If supply-side bottlenecks are prolonged and further hikes of commodity prices elevate inflation expectations, central banks could face further tightening pressure. This will be difficult to execute absent damaging recovery and swelling interest costs," Scope added.

The CEE-11 average budget deficit is seen at 4.7% of GDP in the current year compared with 4.4% in 2021, with Romania expected to record the region's highest, at 7.5% of GDP. In 2023, the average budget deficit in the CEE-11 bloc is forecast to decline to 3.8% of GDP.

In terms of sovereign ratings, Croatia and Bulgaria are likely to see an improvement in ratings due to their planned adoption of the euro, from the start of 2023 and 2024, respectively.

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

2022 2023 Medium-run potential Bulgaria 1.8 3.5 2.8 Croatia 3.5 3.7 3.0 Romania 4.8 4.5 4.0 Slovenia 3.9 2.5 3.5 Euro area 2.8 1.8 1.4

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