GDP growth in eastern EBRD regions outpace that of emerging Europe

Growth in the EBRD regions is expected to slow to 2.4 per cent this year from 3.3 per cent last year. Next year, as inflation continues to ease, growth is expected to pick up to 3.2 per cent.

“Our economists see a diverging pattern of growth among the EBRD regions. The robust growth of the economies of Central Asia and the weaker performance of those in central Europe and the Baltic states reflect the different consequences of energy prices, inflation and shifting patterns of trade,” EBRD chief economist Beata Javorcik said.

Growth in Central Asia is forecast to remain robust, at 5.7 per cent in 2023 and 5.9 per cent in 2024. Drivers include government spending, China’s demand for commodities, intermediated trade with and exports to Russia, and remittances and the relocation of companies from Russia.

In Eastern Europe and the Caucasus, economies have been adjusting to the extreme shock caused by the war on Ukraine. The forecast sees gross domestic product (GDP) growth of 1.9 per cent this year and a rise to 3.1 per cent next year, EBRD said.

In emerging Europe, the deceleration reflects high energy prices, persistent inflation (averaging 9.7 per cent in the EBRD regions in July this year) and slow growth in advanced Europe.

Growth in Türkiye is forecast at 3.5 per cent in 2023 and 3 per cent in 2024. The 1 percentage-point upward revision from the previous forecast reflects pre-election fiscal stimulus, though growth is expected to slow in the second half of the year.

Gas consumption in emerging Europe fell by more than 20 per cent in the winter of 2022-23 as the reduced supply of gas from Russia resulted in much higher energy prices. Oil and gas prices, though back to below levels preceding the war on Ukraine, continue to weigh on the region’s growth.

European industry has shifted away from gas-intensive sectors, such as construction materials, chemicals, basic metals and paper, while increasing production in less carbon-intensive sectors, such as electrical equipment, car manufacturing and pharmaceuticals.

Overall, total industrial output in Europe has been lower than expected, contributing to slower economic growth.

Nevertheless, the labour market has remained resilient, with companies retaining jobs despite large changes in the structure of output. And, amid high inflation, nominal wages have increased rapidly in many economies. In some cases, such as in the Baltic states and Hungary, wage increases have outpaced productivity growth, reducing competitiveness.

In central Europe and the Baltic states, where high costs for food and energy tightened households’ budgets and small and medium-sized enterprises’ access to finance for investment has been reduced, growth is expected to average 0.5 per cent in 2023, down from 3.9 per cent in 2022, and rise to 2.5 per cent in 2024.

A weaker external environment and the impact of inflation in EBRD economies in the south-eastern European Union is expected to lead to growth of 2 per cent in 2023 and a pick-up to 2.8 per cent in 2024.

In Ukraine, GDP growth of 1 per cent is expected for 2023, reflecting a sharp year-on-year contraction in the first quarter. This is likely to be followed by an increase of 3 per cent in 2024.

Output in the southern and eastern Mediterranean region is expected to grow by 3.7 per cent in 2023 and 3.9 per cent in 2024.

Fibre2Fashion News Desk (DS)