Economic report - "Eastern Europe weathered the pandemic relatively well in 2020"

The countries of Central, Eastern and Southeastern Europe survived the Corona year 2020 economically much better than the western EU countries, partly at the expense of public health, say the economists of the Vienna Institute for International Economic Studies (WIIW). For this year, the WIIW expects in its spring forecast for Eastern Europe economic growth of 3,8 percent, similar to that of the euro zone, and has thus revised its forecast downwards.

“Our analyzes show that Eastern Europe weathered the pandemic relatively well in 2020,” says Richard Grieveson, Deputy WIIW Director and co-author of the new WIIW Economic Report, which was published today (Thursday). In 2020, the weighted real gross domestic product (GDP) in the 23 countries analyzed fell by an average of 2,3 percent. The corona-related economic slump was only a third of that in the euro area.

The measures to contain the corona pandemic were not as strict in winter as during the first wave, and more people went to work - whether of their own accord or because they had to, is an open question, according to Grieveson. On the other hand, a number of the countries reacted quickly with strong measures at the beginning of the pandemic a year ago and thus brought the pandemic relatively well under control.

Countries with a larger tourism sector more severely affected

The lessons from the financial crisis more than a decade ago also helped the region as a whole to cope with the corona crisis, according to the WIIW researchers. In 2020, the decline in real GDP in Eastern Europe was significantly lower than in 2009 after the global financial crisis, when economic output there collapsed by 5,6 percent. This time they would have supported the economy with low interest rates and corona aid. However, there are also differences within the region: Both the Eastern European EU member states and the Western Balkans suffered more severe economic slumps in the past year than in 2009. In contrast, the recession in the CIS countries and Ukraine was far less severe last year than in 2009 .

Countries with a larger service or tourism sector were generally more affected by the crisis. In the old EU countries it was Italy or Spain, in the Western Balkans Croatia and Montenegro. "Only Montenegro and Croatia have collapsed more than the euro area," said Grieveson to the APA, "Moldova about as badly as the euro area".

The economic recovery will be delayed this year after the sharp increase in infections over the winter, the WIIW expects. "It is therefore unlikely that the region's above-average economic performance compared to Western Europe will repeat itself this year," says Grieveson.

Recovery at different speeds

In the next three years, the WIIW expects an economic recovery for all 23 economies in Eastern Europe, albeit with large differences in speed. While Serbia and Turkey should soon return to the growth path, countries like the Czech Republic, Croatia, Bosnia-Herzegovina and Moldova will not reach their “pre-pandemic” GDP level again until 2022 - and Montenegro not until 2023 - according to the forecast.

The strongest growth is likely to be recorded in Southeastern Europe this year, including Montenegro (6,5 percent), Turkey (5,8 percent), Serbia (5 percent), Kosovo (4,8 percent), Croatia (4,5 percent) and Albania ( 4,5 percent). On the one hand, these are countries that have been able to absorb the economic downturn very successfully, either through fiscal or monetary policy (Turkey and Serbia). On the other hand, it also includes those countries whose economies fell particularly sharply last year (Croatia, Montenegro) and which are therefore catching up from a lower level this year.

Strong growth is expected for Serbia because the country reacted quickly with targeted aid measures at the expense of a high budget deficit. North Macedonia also reacted in terms of fiscal policy, but much later, which is why growth there is likely to be much lower this year than in Serbia. Turkey, in turn, supported the economy with low interest rates and credit growth. "But that also carries risks and is not the best option in the medium and long term," said Grieveson.

“Serbia is really a success story,” he emphasized in an interview with the APA. "When it comes to vaccinations, Serbia is number 2 in Europe after Great Britain, and in our region even number 1." The good relations with Russia are an advantage for Serbia, but the country also receives vaccine from China.

Forecasts uncertain due to the high number of infections

The WIIW expects the weakest real GDP growth this year in Estonia (1,2 percent), Belarus (1,5 percent), Lithuania (2,1 percent), Bosnia-Herzegovina (2,5 percent), Bulgaria (2,5 percent) Percent) and Latvia (2,8 percent). This results either from higher base effects and renewed lockdowns (Baltic states) or from the limited fiscal policy leeway (Belarus, Bosnia).

"Most countries will reach the level of 2019 again this year, Bosnia, the Czech Republic, Moldova and Croatia not until next year," said Grieveson. Croatia's tourism, like that in Montenegro, will not reach the level of 2019 by a long way this year. Tourism also plays an important role in Bosnia, but it is even more “institutional challenges” that prevent the country from reacting to fiscal policy or from procuring and distributing vaccines.

The forecasts are currently particularly uncertain because of the still high number of infections, emphasize the economic researchers. “As long as vaccination rates do not rise, the downside risks for our forecasts are considerable.” However, it is expected that more vaccinations and warmer weather will mean that the pandemic will subside by late spring and that there will be an economic recovery from the middle of the year. (apa)