EU members in Central and Eastern Europe are narrowing the economic gap with the Western part of the continent, according to Emerging Europe.
The Vienna Institute for International Economic Studies (wiiw) Winter Forecast for 23 regional economies revealed that the economic outlook for 2024 improved significantly in most Central, Eastern and South-Eastern European countries. Richard Grieveson, deputy director of wiiw and lead author of the Winter Forecast, stated:
“The dramatic fall in inflation, sharp rise in real wages and pickup in private consumption, combined with imminent cuts in key interest rates, should put growth back on track. The hoped-for recovery of the German economy, which is so important for the region and which should materialise by the middle of the year, is, of course, also an important element.”
In 2024, wiiw predicts an average growth of 2.5 per cent for EU member states across the region.
The EU members in Central and Eastern Europe are returning to normality and will continue the process of economic convergence with Western Europe that was interrupted last year.
EU member states from South-Eastern Europe, Romania (three per cent) and Croatia (2.6 per cent), are expected to demonstrate strong growth, supported by inflows from the NextGenerationEU COVID-19 recovery fund. The six Western Balkan countries will grow by an average of 2.6 per cent. Ukraine’s GDP should also increase by 3 per cent, although its development depends on the course of the war and Western aid. However, there are significant downside risks despite the positive outlook.
“A continued recession in Germany, an escalation of the wars in Ukraine and Gaza, disruptions to supply chains such as those currently occurring in the Red Sea and, above all, the election of Donald Trump as the next US president could seriously jeopardise the recovery.”
Inflation in the EU countries of the region will more than halve in 2024, to an average of 4.7 per cent. In the Western Balkan countries, there will be a similarly sharp decline, to an average of 3.8 per cent. Inflation would also decline dramatically in most of the other countries surveyed, except for the special cases of Turkey, Russia, and Belarus.
While core inflation (excluding energy and food) is likely to remain high, given the strong growth in real wages and consumer spending, the upward trend in prices is much lower than a year ago, especially for energy and food.
Donald Trump’s election victory is likely to have particularly serious implications for Ukraine. Although the country performed much better than expected in 2023, with growth of 5.5 per cent, the current unpredictability associated with US and EU aid is posing a great deal of economic uncertainty. Olga Pindyuk, Ukraine expert at wiiw, warned:
In view of an expected budget deficit of 25 per cent of GDP, which is primarily financed by Western aid, the ongoing delays in the commitment and disbursement of funds naturally have an extremely negative effect on confidence in the Ukrainian economy. Unfortunately, these uncertainties are likely to become the new normal for Ukraine.
