CEE Economic Update: Gradual recovery, no deflation

Economic growth to gradually recover

Despite the high degree of uncertainty, the worst seems to be behind the CEE region. Significantly downward revisions to growth have been made vs the pre-Covid-19, but 2Q looks to be the bottom and the second half of the year should offer a gradual recovery. Still, local economies are unlikely to reach pre Covid-19 levels until very late 2021 or 2022.

The Czech economy is to see the most negative growth in the region this year (-7.0%) though in terms of the scale of the outlook downgrades vs the pre Covid-19 situation, the almost 9% downward revision to Czech growth (+1.7% pre-crisis vs -7.0% now) is equal to the one in Hungary and larger than in Poland and Romania. This partly reflects the mix of the large openness of these two CEE economies as well as their exposure to the cyclical auto industry (particularly when compared to Poland). See CEE automotive industry for more on the CEE auto sector. The CEE growth recovery should stem from a mix of improving foreign demand and stabilising domestic demand, both underscored by the low base, generating solid YoY figures. The 2021 growth should range around 4% for Czech, Poland and Hungary, while around 7% in Romania.