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CEE: Economy Could Become More Vulnerable to Crimea Crisis

Published: April 2, 2014; 17:04 · (Vindobona)

If the political crisis in Crimea aggravates negative effects in the economy could soon become evident.

Central and Eastern Europe (CEE) have up to now appeared unimpressed by the political crisis in Ukraine. / Picture: © Vindobona.org

According to Friedrich Mostböck, chief analyst at Erste Group, the political crisis in Crimea will also become noticable in an economic regard even if the sanctions will not become tougher. The political crisis in Ukraine has not yet affected the economic development in Europe. However, if it will continue it will definitely have effects on the economy, Mostböck stressed.

In an interview with the Austrian Press Agency (APA), Erste’s chief analyst pointed out that growth estimates made so far will not be confirmed in case the crisis continues. “The current mood of participants on the financial market, particularly of business managers, has worsened since the beginning of the year,” Mostböck explained. According to him, sentiment indicators would often anticipate the economic development. Moreover, consensus estimates of analysts with regard to listed companies worldwide have been reverted. “This means that less than only a three months ago is expected,” Mostböck said.

According to the economist, Russia was definitely more vulnerable than the European Union with regard to economic sanctions. While the European Union’s exports to Russia comes at € 213bn annually, exports from Russia come at € 123bn; however, on the basis of economic performance exports from the EU to Russia only come at 1.7 percent of GDP while Russian exports to the EU is 8.1 percent of the Russian GDP. Additionally, the Russian exports are based mainly on oil and gas while the exports from the EU are much more diversified.

According to a consensus prognosis, the Russian GDP will grow by two percent this year. However, growth estimates were lowered in the past months. Erste analysts expect the Eurozone to grow by 1.1 percent this year and accelerate growth to 1.5 percent in 2015. The unemployment rate is expected to even stabilize in the coming year.

Central and Eastern Europe (CEE) have up to now appeared unimpressed by the political crisis in Ukraine. In the first months of the year 2014 most of the economic indicators have improved in the CEE region. “We believe the recovery will continue in 2014,” Mostböck said. He see Poland with the best chances of growth, which is expected to come at 3.1 percent, followed by Romania with a growth rate of 2.3 percent. The Czech Republic and Hungary are expected to grow faster compared to the previous year with 2.0 percent and 1.9 percent respectively. Moreover, inflation is forecast to develop “moderately”. “We expect average inflation rates between 1.0 percent (Hungary) and 2.1 percent (Romania)”, the analyst announced. Interest increases are expected only in the far future.

Inflation in the Eurozone is decreasing, according to experts, from 1.3 percent to 1.0 percent. However, a deflation is not expected.