While the region weathered off rising macroeconomic pressures through H1 2022 and outperformed the broader Europe region, persisting inflationary pressures and easing external demand, combined with ongoing uncertainty regarding energy supply, will pose a notable shock to economic activity and drive most Central Europe markets into a contraction through H1 2023. The suspension of gas flows from Russia will present additional headwinds to the Central Europe region and will likely necessitate some degree of gas rationing in the upcoming quarters. Inflation will gradually begin to subside only in late 2023, but will remain historically elevated, which will prevent a more substantial recovery in growth In H2 2023.
Despite mounting pressures and an inevitable contraction at the beginning of 2023, the Central Europe region will outperform its peers in WEUR and should still post some growth, with activity likely to see a more resilient acceleration at the end of 2023, paving the way for a healthy rebound in 2024. As such, the Central Europe region, and especially Poland and markets in Southeast Europe, should provide some new opportunities to multinationals when it comes to both B2B and B2C demand. While unemployment is set to see a slight uptick, labor markets should remain relatively resilient and should pave the way for a solid uptick in consumer spending in 2024. Despite the impending shock, the region is likely to continue to present long-term investment opportunities for multinationals.
Risks to the outlook, however, have increased substantially, with the war in Ukraine continuing to weigh on sentiment. Internal political tensions and the ongoing spar between the European Commission (EC) and the government of Hungary and Poland not only will continue to lead to persisting policy uncertainty, but in the case of the former threatens to leave both markets locked out of much-needed EU funding. Additionally, the introduction of fiscal support and energy measures will continue to weigh on the region’s fiscal sustainability outlook and, in the case of a steeper contraction that lasts through the majority of 2023, will require fiscal corrections.
Download an Executive Summary of the Central Europe Outlook for 2023
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