“Latest Q3 GDP data out of Central and Southeastern Europe (CE/SEE)* confirmed our assessment that the region is well on track for the highest GDP growth rate since 2008, when GDP growth had been above the 4 per cent threshold the last time. Moreover, current strong GDP dynamics do imply we see more up- than downside risks to our current 2018 forecasts. Compared to the previous CEE boom, lasting from 2000 to 2007/2008, we see less macroeconomic imbalances attached to the ‘new CEE boom’,” explains Gunter Deuber, analyst at RBI.
Central Europe to remain strong
Deuber expects dynamics in Central Europe to remain strong with GDP growth well above 3 per cent in 2018, after estimated 4 per cent in 2017. Private consumption and stronger EU transfers are supposed to support growth in 2018/19. Deuber believes that major central banks in the region (e.g. Czech Republic, Poland, Hungary) will be increasingly under pressure to phase out their monetary stimulus in 2018, well ahead of ECB.
Romania as the driver of SEE
He anticipates growth in Southeastern Europe (SEE) to be back below 4 per cent in 2018. Growth in Romania is expected to remain strong driven by domestic demand and a further procyclical fiscal loosening, resulting in risk that the budget deficit overshoots 3 per cent of GDP in 2018. Growth in Serbia is seen to recover after a soft patch this year, whereas investments and the job market in Croatia could still see some spillover from a large corporate restructuring.
Russia and EE on a good way of recovery
According to Deuber, Russia’s economy recovers somewhat faster than anticipated, resulting in almost 2 per cent growth in 2017 and up to 2 per cent in 2018. Russian inflation declined to record lows, opening the door for continued measured interest cuts throughout 2018. The positive regional dynamics are also supportive for a reduction of macro-financial risks in the other EE* countries (Belarus, Ukraine).
* Central and Eastern Europe (CEE) consists of the sub regions Central Europe (CE): Czech Republic, Hungary, Poland, Slovakia, Slovenia; Southeastern Europe (SEE): Albania, Bosnia and Hercegovina, Bulgaria, Croatia, Kosovo, Romania, Serbia; and Eastern Europe (EE) Belarus, Russia, Ukraine