By Gunter Deuber and Casper Engelen, RBI
In the last weeks, we have reported the daily number of infections rising in Bosnia and plateauing in Poland on this blog. Unfortunately, these uninspiring developments are now mirrored in many other CEE countries. This upsurge might threaten previous successes attained throughout the region from strict measures that were rapidly put into place. Especially the Southeastern-European (SEE) countries have seen a strong increase in the daily number of infections in the past days and weeks. The recent surge in new infections throughout the SEE-region has brought the daily confirmed cases in the region above its earlier high. After loosening the restrictions, all SEE countries have shown a new upsurge in the daily new infections, but some countries, most notably Kosovo, Albania, Bulgaria and Bosnia and Herzegovina have recently reached their all-time highs and are still on an upward trajectory. Other countries, such as Romania, Croatia and Serbia are currently in a worrying upwards movement, but they have not yet surpassed their earlier highs reached in the April-May period.
The divergence between the outcomes of the development of the pandemic in the CE region is high. The CE region shows a small decline compared to its high in April but has plateaued at the level reached at the beginning of May. However, there are significant differences between the individual countries. Poland still seems to be plateauing at a level between 300 and 400 daily new infections, while the pandemic seems to be gaining speed in Czechia. Slovakia, which was previously not hit very hard, seems to be at the preliminary beginning of a newly increasing trend. Hungary is the exception in the CEE region, although the testing scheme is a little less thorough than that of its CE peers, the daily number of confirmed cases is declining and stays at an exceptionally low level.
On a positive note the Eastern European (EE) region has started a downward trend after the highs reached in mid-May, mostly dependent on the development in Russia. In Russia, the number of daily new infections has been declining steadily. In contrast to the countries in the SEE region, the loosening of restrictions has not led to an increase in the confirmed cases here.
New smart/regional lockdowns inevitable?
It is important to note that although the comparisons on the country level gives us great insights into the current situation and its development, the regional disparities within the countries are important, for the analysis of the spread of the virus as well as for the containment strategies. This also means that in some countries, where previously the capital cities were hit more substantially, now other regions seem to show the largest part of the increase in cases. As mentioned earlier on this blog there seem to be regional clusters in some countries, for instance in the mining districts in Poland. In Czechia the Moravian-Silesian region seems to be a hotspot currently. In the SEE region the increased number of infections seem to be concentrated in the capital cities again, for instance in Tirana (AL), Sarajevo (BiH) or Sofia (BG). Policy-wise some countries acknowledge the need for regional differentiation. In Serbia, the recent move to make masks obligatory in all indoor areas in Belgrade mirrored that in other areas in the country, showing that government focuses their policies on the regional clusters. Finally, the state of emergency has been declared in Belgrade. In Russia, which shows no sign of increase in case numbers, the easing of restrictions is handled on a regional basis, where most regions have entered a phase of far reaching easing already.
Downside risks currently clustered in the SEE region
It remains to be seen whether the CEE-region will return to stricter and more broad-based lockdown measures being enforced once again or whether the region can flatten the curve through a reemphasis on social distancing and other, less strict or more geographically confined measures. A return to a lockdown of society and the economy might be even harder for the population to digest than the original phase and the damage to the economy would again be significant. The economic effect of the lockdown phase on the economies has been brutal in some SEE countries since the average regional GDP decline is projected to be around -6.5% for the year 2020. The economic slump in the other CEE regions has also been severe and is projected to be at least at -5.2% and -5% in the CE and EE region respectively. Recent experience showed that one week of a strict nation-wide lockdown may cost up to 0.5pp of annual GDP growth. Therefore, even smarter and/or more regional lockdowns may also imply a 0.1-0.3pp of weekly GDP losses. So, some additional three to six weeks of smart/regional lockdowns over the coming months may imply at least 0.5 to 1.5% of additional downside risks to our 2020 GDP calls in some CE or SEE countries, while we currently see the biggest risks clustered in the SEE region – which is already the hardest hit region in our current forecast set.
Gunter Deuber is Head of Economics, Fixed Income and FX Research at Raiffeisen Bank International in Vienna and designated Head of Raiffeisen Research.
Casper Engelen is a Junior Economist in the Economics Research Department at Raiffeisen Bank International in Vienna.
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