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Major economic impact of pandemic in Eastern Europe

Growth severely shrinking everywhere

20 March, 14:22
(by Stefano Giantin) (ANSA) - BELGRADE, MARCH 20 - The impact of the coronavirus pandemic on Central- and Eastern Europe and on the Balkans countries (CESEE region) will be worst since the global financial crisis, with the local economies set for their worst year in more than a decade, according to a new report of the Vienna Institute for International Economic Studies (wiiw).

The Institute had developed four scenarios for the economic impact of the coronavirus, from mild to severe, but given the current trends "the severe scenario has become the best case," wiiw said. In general, average growth in CESEE would be 1.1% this year, "making it the worst 12 months for the region since the global financial crisis. Most or all countries in the region will experience at least a technical recession." The most negative scenario at the moment, wiiw noted, "assumes that the spread of the virus can be contained by mid-2020, and that a strong and coordinated policy response is enacted by the world's major economies. If one or both of these conditions is not met, then the economic fallout will be even more negative and longer lasting." Among Central- and Eastern European countries already members of the EU, Bulgaria will grow 1.4% in 2020 (-1.4% compared to the pre-coronavirus forecast), the Czech Republic 1.1% (-1.1%), Estonia 1.4% (-1.3%), Croatia 1.4% (-1.3%), Hungary 1.8% (-1.5%), Lithuania 1.7% (-1.1%), Latvia only 0.6% (-1.4%), Poland 2.0% (-1.6%), Romania 1.7% (-1.5%), Slovenia 1.5% (-1.1%) and Slovakia 0.8% (-1.2%). In the area, the average growth will be 1.6% in 2020, instead of 3.1% as indicated by pre-coronavirus forecasts (-1.4%). According to the Vienna-based institute, Czechia, Lithuania and Slovenia will be the countries in the area that will experience the less negative impact from the epidemic, while Poland will be hit the most.

In the Western Balkans, Albania will register a 1.7% growth this year (-1.5% compared to the forecasts made before the pandemic), Bosnia and Herzegovina 1.2% (-1.3%), Montenegro 1.4% (-1.4%), North Macedonia 1.7% (-1.6%), Serbia 2.0% (-1.7%) and Kosovo 2.8% (-1.5%). The economically most-affected country in the region will be Serbia, the less affected Bosnia and Herzegovina, according to wiiw estimates. Outside from the EU, Russia may enter a recession (-0.1%, -2.2% compared to previous estimates) and Turkey could register a significant reduction of growth, from 3.9 to 2.1%. In general, "EU member states in the region are generally wealthier, have better healthcare systems, and will have more scope to enact expansionary fiscal and monetary policies to offset the downturn," the Institute said. On the contrary, the ability to react of countries in the Balkans, but also of Turkey and Ukraine "will be limited by considerations of macro-financial stability and less fiscal room for manoeuvre,".

Moreover, "these countries also generally have worse healthcare systems." Countries that very much rely on energy exports, such as Russia and Kazakhstan and on tourism (Croatia, Slovenia, Albania and Montenegro) "are likely to be badly affected", with "capital flight a major risk" for the entire area. Finally, the shortage of labour, a serious problem affecting several countries in the region, is likely to become more acute and will threaten the sustainability of the area's economic model.


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