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2022/06/01 / Erste Group Research

Economic rebound overshadowed by political risks

Real GDP growth jumped to 7.1% y/y in 2021, reflecting a broad-based recovery after the pandemic. Component-wise, private consumption stands out rising 6.1% y/y contributing 4.4pp to the headline figure. All other components also added to overall growth, including net exports and investments with a 1.2pp and 1pp contribution to headline GDP. Government consumption rose 1.6% y/y adding further 0.3pp to growth.

Strong positive carry-over, alongside surprisingly upbeat leading indicators, suggest solid performance in 1H22 despite numerous risks. Still, growth is poised to slow in 2H22 and 2023 as double-digit inflation bites into disposable income and thus slows the key domestic component of growth. Bottom line, we decided to trim our FY22 GDP forecasts by 0.5pp to 3.2% y/y, followed by further slowing to 2.4% y/y in 2023 as consumption loses steam. Overall risks are to the downside.

The most immediate economic impact of the war can be observed in food and fuel prices. After just 2% y/y rise last year, inflation exploded to 13.2% y/y in April, with the peek yet to be reached. FY22 average inflation is thus seen at double-digit figures (11.3% y/y).

Budget gap is projected to have narrowed to 2.4% of GDP in 2021, according to assumptions in the latest Global financial framework released by MoF. We expect, in line with MoF projections, further narrowing this year as strong demand in combination with high inflation lifts projected VAT intake while still only temporary financing limits the expenditure side.

Political parties remain deadlocked although boycott of parliamentary elections scheduled for October seems to be off the table.

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General information

AuthorErste Group Research
Product nameCEE Country Macro Outlook
Topic in focusFX, Macro/ Fixed income
Economy in focus-
Currency in focus-
Sector in focus-


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