East EU Slides Toward Slowdown as Russia’s War in Ukraine Bites


Economies in the east European Union will probably show the first signs of weakness after an unexpectedly strong start to 2022, as Russia’s war in Ukraine undercuts companies and hits consumers.

Article content

(Bloomberg) — Economies in the east European Union will probably show the first signs of weakness after an unexpectedly strong start to 2022, as Russia’s war in Ukraine undercuts companies and hits consumers. 

Article content

Annual growth rates are expected to have held up in Poland, Romania and Hungary from April to June, mainly because of a surge in consumption that came with the end of pandemic restrictions. But the first two economies are expected to shrink on a quarterly basis, and Hungary is seen slowing sharply, according to Bloomberg surveys.

That may signal the region is sliding closer to recession in the second half. And challenges are mounting: The highest inflation in decades is forcing central banks to squeeze demand by raising borrowing costs, the energy crisis spurred by unpredictable supplies from Russia are causing a spike in utility bills, and a severe drought is expected to hit agriculture across the region.

“Each weaker reading will strengthen fears of an impending recession,” said Piotr Bielski, a Warsaw-based analyst at Santander Bank Polska. 

Article content

For Poland, it may be the first negative-growth quarter since the start of the Covid-19 pandemic two years ago. 

Hungary, on the other hand, is likely to avoid a quarterly dip as Prime Minister Viktor Orban boosted consumption before winning April elections with a state spending spree that included tax breaks and a cap on fuel prices.

The Czech Republic, which reported its gross domestic product data at the end of July, also unexpectedly avoided a quarterly contraction. GDP advanced 3.6% on an annual basis and 0.2% from the previous quarter.

The mounting difficulties are already starting to show, however. European power prices jumped to a new record on Monday, while interest rates that have risen from near zero to the highest since before the global economic crisis are stifling demand for everything from houses to holidays.

“Given the combination of much tighter financial conditions and a commodity-driven squeeze on household incomes, we expect that the slowdown has been delayed rather than avoided,” said Kevin Daly, a London-based economist at Goldman Sachs Group. “We are less positive for the second half of the year.” 



Source link

Comments are closed.