Consumers in WEUR are psychologically unprepared for the rapid increase in inflation at rates not seen in 40 years

While demand may ease, consumer spending will remain a key driver for growth in Central Europe

While growth in Europe is set to ease substantially, Central Europe’s resilience to the current price pressures signals that the region will offer new opportunities to MNCs, who will otherwise struggle to find new sources of demand in the EU and will experience greater pressure to make up for the substantial loss of revenue in Russia and the CIS. MNCs may see higher competition in Central Europe as investors struggle to find strong opportunities in the Europe portfolio.


Retail sales in Hungary and Poland expanded by 15.8% YOY and 33.4% YOY, respectively, in April, despite a surge in inflation. The performance of the retail sector remained much weaker in WEUR, registering a contraction of 4.9% YOY in the UK and 0.4% YOY in Germany throughout April. Industrial production in Central Europe remained elevated throughout April, despite mounting pressures, and grew by 13.0% YOY in Poland and 3.1% YOY in Hungary. Manufacturing output remained weak in Western Europe, growing by a mild 0.7% YOY in the UK and 2.4% YOY in Spain, and it contracted by 2.2% YOY in Germany.

Our View

The ongoing conflict in Ukraine has derailed growth across Europe, but despite our initial expectations, the latest data suggests that domestic demand dynamics and industrial output in CE have proven more resilient to the ongoing shock. While much of the increase in domestic consumption in markets such as Poland can be attributed to the significant inflow of Ukrainian refugees, domestic demand across Central Europe has managed to outperform despite the significant surge in inflation. On the other hand, both domestic consumption and output in Western Europe have moved in line with our expectations and eased substantially in the face of mounting inflation and output costs. In the past two months, consumers in WEUR markets have shown greater propensity to trade down and have begun to reduce the volume of purchases, as price pressures have driven real wages into a contraction. While household incomes in Central Europe have come under similar pressure, consumers have so far abstained from significant cuts to their spending habits. A significant part of the reason behind the greater resilience of domestic consumption in Central Europe can be attributed to the fact that consumers have experienced exceedingly high inflationary pressures relatively recently throughout the 1990s and the 2000s and have thus become relatively more accustomed to the high inflationary environment than WEUR consumers, who have never seen such levels in 40 years. While we do expect demand to ease going forward, these trends will necessitate upward revisions to our CE outlook, with consumer spending remaining a key driver for growth.

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