Study: Central and Eastern European Economy to Continue Enjoying Robust Growth

April 13, 2018//-Despite some political uncertainty in the region, the Central and Eastern European (CEE)  economy is expected to continue enjoying a robust growth spell as the majority of last year’s tailwinds remain in place.

The Eurozone’s economy is expected to grow at a healthy rate this year, supporting the CEE region’s exports,  according to April 2018 estimate compiled by FocusEconomics FocusEconomics, a leading provider of economic analysis and forecasts for 127 countries  in Africa, Asia, Europe and the Americas.

It added that the tight labor markets and solid absorption of EU funds should support household consumption and investment. That said, growth is expected to decelerate from last year’s over one-decade high as inflation creeps up and the impact from some fiscal stimulus measures fades, the report noted.

” FocusEconomics expects regional growth to come in at 3.9% this year, up a notch from last month’s estimate. Next year, growth is projected to slow to 3.3%. This month’s upgraded 2018 outlook is due to upward revisions for 4 of the 11 economies included in the region, including major players Hungary and Poland. The forecasts for the remaining seven economies were left unchanged”.

The upward revision to the region’s fourth-quarter growth rate was due to revised national accounts data for the Czech Republic.

More complete data for the country revealed that government spending gained steam in the quarter. This, combined with robust investment on the back of higher absorption of EU funds and healthy household spending amid a tight labor market, caused GDP to expand at the quickest pace since Q3 2015.

Elsewhere in the region, the growth picture was also sunny. Buoyant domestic demand fueled Poland’s economy to grow at the fastest pace in six years in Q4, and salary hikes, low unemployment and soaring public consumption caused Hungary’s economy to expand at the quickest pace since Q2 2014.

Retail sales figures for January and February point to strong household consumption, likely driving by rising wages and low unemployment. Accommodative monetary policy and positive business sentiment should be supporting investment. Regional GDP is forecast to have grown a healthy, but slower, 4.4% in the first quarter of 2018.

The region’s political situation has been dominated by clashes with EU officials over policy in the past year, particularly on measures that are seen as backsliding on democracy and migrants. Poland has been embroiled in a standoff over controversial judicial reforms for two years, which saw the European Commission invoke Article 7 of the EU Treaty against it last December, an unprecedented disciplinary move.

In March, the Polish government offered some  policy concessions, and in April representatives from both sides of the conflict met for negotiations. It remains to be seen, however, if the changes to the judiciary were sufficient to address the EU’s concerns over the rule of law.

Hungary appears set to continue clashing with EU officials and other member nations after Prime Minister Viktor Orbán and his ruling Fidesz party won a supermajority in the 8 April general elections. The large parliamentary support will allow Orbán to potentially push through wide-reaching reforms, and he campaigned on a staunchly anti-immigration platform.

Furthermore, the European Commission and the European Parliament have voiced concerns over recent judicial reforms in Romania, which could undermine judicial independence.

Meanwhile, political uncertainty has risen notably in the Czech Republic and Slovakia in recent weeks. In the Czech Republic, the Social Democrats pulled out of coalition discussions with ANO on 6 April, generating uncertainty over the next steps to form a government and increasing the risk that the country could head to a snap election.

A cabinet reshuffle has failed to ease political tension in Slovakia after the murder of a journalist investigating corruption and his fiancé provoked widespread protests across the county.

Romania is projected to be the fastest-growing economy this year, with GDP seen expanding 4.5%. Poland and Slovenia are also seen achieving fast growth rates this year of above 4.0%. On the other end of the spectrum, Croatia is projected to be the region’s laggard, with an expansion of 2.8%, according to the report.

African Eye Report



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