Viennese International Economic Institute: Growth in Eastern Europe Weaker than Expected

OrganizationsOther ♦ Published: July 6, 2023; 16:43 ♦ (Vindobona)

The Central and Eastern European EU member states recorded weaker economic growth in the first quarter of this year, according to a recent study by the Vienna Institute for International Economic Studies (WIIW).

Even though many economies in Central, Eastern, and Southeastern Europe (CESEE) have shown impressive resilience in the face of the Ukrainian war, they are experiencing sluggish growth. / Picture: © Wikimedia Commons /Samotny Wędrowiec, CC BY-SA 3.0

The Visegrad countries of Poland, the Czech Republic, Slovakia, and Hungary, which are important for Austria, were particularly affected by the recession in Germany and the technical recession in the euro area. Inflation and higher interest rates also had a negative impact.

"German industry, in particular, is suffering, which has a negative impact on the Visegrad countries, which are strongly intertwined with it," Vasily Astrov, senior economist at WIIW, said at a press conference.

After growing 0.5 percent in the fourth quarter of 2022, GDP growth in the Visegrad region and Slovenia came to a virtual standstill in the first quarter of 2023. In Poland, the Czech Republic, and Hungary in particular, there was even a 0.9 percent decline in economic development. Estonia and Lithuania recorded two consecutive quarters of GDP contraction, with the decline intensifying over time in Lithuania.

Unexpected positive economic developments

By contrast, Bulgaria, Croatia, and Romania performed better, although economic growth slowed somewhat there as well. In the first quarter of 2023, growth fell to 2.4 percent from an average of 3.5 percent in the fourth quarter of 2022.

However, improved growth momentum was observed in some countries in Central, Eastern, and Southeastern Europe (CESEE). The countries of the Western Balkans benefited from a successful tourism season as well as remittances and foreign direct investment. As a result, average growth increased from two percent in the fourth quarter of 2022 to 3.2 percent in the first quarter of 2023.

The countries of the Commonwealth of Independent States (CIS) and Ukraine also recorded improved growth performance. This was partly due to the lower statistical base, but also to the gradual adjustment of the economies of Russia, Belarus, and Ukraine to the effects of war and sanctions.

In Turkey, growth increased to four percent from 3.5 percent previously due to increased purchasing power ahead of the presidential elections. It was also announced that inflation rose slightly less in June to 38.21 percent from 39.59 percent the previous month. Economists had expected an even smaller decline.