Download the June 2021 CEE Outlook, including country-specific views.

Front-loaded investment of Next Generation EU funds – and governments’ success in spending EU funds productively will be a key factor impacting the economic outlook of the 11 EU member countries of CEE (the CEE-11).

Scope projects a solid recovery in CEE-11 of 4.6% this year before 4.7% growth in 2022.

“The Covid-19 shock has demonstrated the region’s enhanced economic resilience, boding well for a robust recovery assuming health authorities remain on track to vaccinate around 70% of the population by year-end across many countries of the region,” says Giacomo Barisone, head of sovereign and public sector ratings at Scope.

Scope expects regional governments to maintain budget stimulus, underpinning economic recovery even at the cost of higher near- to medium-run public debt.

One possible headwind is surging inflationary pressures, which could result in faster-than-expected tightening of monetary policy, higher interest rates and a rise in debt-servicing costs.

The crisis has highlighted structural labour market challenges, exacerbating existing societal inequalities. “Reforms addressing tight labour markets, shortages of skilled labour, and improving labour force participation rates will prove vital for sustaining recovery,” says Levon Kameryan, analyst at Scope.

In addition, the regional recovery is set to remain uneven, partly reflecting recovery from recessions of varying magnitudes during 2020. Manufacturing production is near pre-pandemic levels, but services sectors have not bounced back as fully. Countries such as Croatia, which rely more on tourism, face a more gradual recovery given residual pandemic-related travel restrictions in contrast with countries with more diversified economies such as Poland.

Scope’s updated growth forecasts for CEE-11 are: Poland: 4.9% (2021), 4.5% (2022); Czech Republic: 3.8%, 4.5%; Hungary: 4.5%, 5.5%; Slovakia: 4.3%, 4.7%; Romania: 4.8%, 4.7%; Bulgaria: 5.4%, 4.7%; Croatia: 5%, 5.8%; Slovenia: 4.5%, 4.6%; Lithuania: 2.7%, 3.8%; Latvia: 3.6%, 5.2%; and Estonia: 3%, 4.5%.

Outside the EU, in Russia, Scope expects 3% growth this year and 2.7% in 2022, before a return to a moderate medium-run potential rate of 1.5-2% a year. Higher oil prices and oil production should facilitate greater public investment and support recovery. Oil market volatility remains a risk. The central bank’s rate tightening stance will support the rouble near term.

Turkey is poised for a sturdy rebound (8% for 2021, and 4% in 2022), helped by strong Q1 2021 growth data, and expectation of future monetary loosening, the latter, however, concurrently making the economy more vulnerable to capital outflow, lira depreciation and higher structural inflation.

In Georgia, Scope projects a growth of 5% this year, followed by 5.5% in 2022 as the tourism sector gradually recovers.