Central Europe and Baltic states GDP will fall by 4.3% in 2020, ERBD report says

Fruit and Vegetable Market in Koszalin, northwestern Poland, in Western Pomerania, 05 May 2020. As of today, the Council of Ministers decision has introduced a further stage in the lifting of restrictions related to COVID-19, which affects trade. [EPA-EFE/Marcin Bielecki]

The economies of Central Europe and the Baltic states are seen contracting by 4.3% on average in 2020, according to a report by the European Bank for Reconstructing and Development (ERBD) published on Wednesday (13 May). The report also showed that EU members in south-eastern Europe are expected to face a 4.8% GDP decline in 2020.

According to the latest update of the Regional Economic Prospects – COVID-19: From shock to recovery report, the region, which includes Croatia, Estonia, Hungary, Latvia, Lithuania, Poland, the Slovak Republic and Slovenia, can expect a considerable fall in their economic output due to the coronavirus crisis.

In central Europe and the Baltic States, “strict containment measure have included a massive shutdown in businesses and schools, while disrupted value chains are preventing production, including in the automotive industry, which accounts for almost a half of industrial production in the Slovak Republic,” the report said.

Weaker external demand is likely to further delay recovery. Output in the region is set to fall by 4.3% in 2020 but bounce back strongly in 2021, by 4.5%.

The report noted that Poland, the largest economy in the region, had been particularly resilient during the global financial crisis of 2008-09, but would not escape unscathed this time.

The coronavirus crisis was expected to have a more severe impact on domestic businesses and employment, given Poland’s high level of integration into global value chains and large exposure to trade, especially within the European Union. The Polish economy would contract by 3.5% in 2020 and grow by 4.0% next year.

Croatia, Latvia and Lithuania will face the biggest falls in the region, with their economies expected to contract by 7.0% in 2020. A key channel for disruption is tourism. In Croatia, for example, tourist generates about 20% of GDP.

However, the 2021 forecast is for growth of 5.0% in Latvia and Lithuania and of 6.0% in Croatia.

“These estimates are subject to unprecedented uncertainty. If social distancing remains in place for much longer than anticipated, the recession may be much deeper, with the 2019 levels of output per capita not attained again for years to come,” the report said.

South-eastern Europe economies to contract

EU members in the south-east were also likely to be severely affected by the coronavirus crisis, with a major cause of disruption coming from tourism, especially in Cyprus, Greece and Bulgaria.

The report showed that south-eastern EU members are expected to face a decline of 4.8% this year rebound by 4.6% in 2021.

Regarding Romania, the most populous country in this group, the ERBD forecast a contraction of 4.0% in 2020, “assuming the epidemic significantly slowing down from the second quarter”. In 2021, the Romanian economy is forecast to grow by 4.0%.

[Edited by Zoran Radosavljevic]

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