Central & Eastern Europe GDP (Q2 2021)

Re-opening boost pushes CEE economies above pre-pandemic levels

  • The Q2 GDP data for Central and Eastern Europe revealed that the regional recovery gathered pace last quarter as economies reopened following virus waves in Q1. We expect the recovery to remain strong in the second half of this year, although low vaccine coverage clouds the outlook in some economies.
  • With the number of new daily virus cases falling across Central and Eastern Europe (CEE), the widespread easing of restrictions on activity provided a reopening boost to the region’s economies in Q2. The largest quarter-on-quarter expansion was in Hungary, where GDP grew by an impressive 2.7% relative to Q1. GDP also increased at a robust pace of around 2% q/q in Slovakia, Romania and Poland. That said, output grew by a more muted 0.6% and 0.4% q/q in Czechia and Bulgaria respectively. (See Table 1.)
  • The continued strong performance in most of the region’s economies means that recoveries in CEE remain near the front of the EM pack and ahead of most other European economies. Romania’s economy is now 2.0% larger than it was in Q4 2019 and GDP in Hungary and Poland has now surpassed it’s pre-pandemic levels. That said, Czechia remains a clear outlier, with GDP still around 5% below where it was prior to the pandemic. (See Chart 1.)
  • While breakdowns of Q2 data are not yet available, Hungary’s outperformance last quarter was probably supported by its rapid vaccine rollout which allowed authorities to relax virus containment measures more quickly than in the rest of the region. Meanwhile, the re-opening boost hasn’t been as large in Czechia and the severity of its past lockdowns has weighed on overall activity.
  • In any case, we expect the reopening of economies to generally support recoveries in the second half of this year. The number of new virus cases remains low, restrictions have been relaxed further and vaccine coverage is relatively high in most places. Strong labour markets and loose fiscal policy will also support demand. That said, there are exceptions: the outlook in Bulgaria and Romania is more uncertain given that vaccine rollouts have been slower and new daily infections levels have started rising again this month.

Chart 1: Central and Eastern Europe Q2 GDP (SA% Change Vs Q4 2019)

Sources: National Statistics Offices, Capital Economics

Table : Central & Eastern Europe GDP (All data are seasonally-adjusted)

Bulgaria

Czechia

Hungary

Poland

Romania

Slovakia

% q/q (% y/y)

% q/q (% y/y)

% q/q (% y/y)

% q/q (% y/y)

% q/q (% y/y)

% q/q (% y/y)

Q3 ‘20

+4.3 (-5.2)

+6.8 (-5.4)

+10.6 (-4.9)

+7.7 (-2.0)

+4.8 (-5.4)

+9.0 (-2.7)

Q4 ‘20

+2.2 (-3.8)

+0.7 (-5.3)

+1.6 (-4.1)

-0.3 (-2.6)

+4.0 (-2.3)

+0.5 (-2.7)

Q1 ‘21

+2.5 (-1.8)

-0.3 (-2.4)

+2.0 (-1.9)

+1.3 (-1.3)

+2.5 (-0.4)

-1.4 (+0.3)

Q2 ‘21

+0.4 (+9.6)

+0.6 (+7.8)

+2.7 (+17.7)

+1.9 (+10.7)

+1.8 (+13.6)

+2.0 (+10.2)

Sources: National Statistics Office, Capital Economics


Nicholas Farr, Assistant Economist, nicholas.farr@capitaleconomics.com

Download
Save
Nicholas Farr Assistant Economist
Continue reading

More from Emerging Europe

Emerging Europe Economic Outlook

Near-term recovery to face stronger headwinds

The region has experienced a rapid recovery, but the re-opening boost has now faded and the region is likely to face stronger headwinds in the near term due to surging COVID-19 cases, rising inflation and supply disruptions. Central European economies are vulnerable to shortages of key production inputs in the auto sector and low vaccine coverage countries such as Russia, Romania and Ukraine look most at risk of imposing tighter containment measures. Inflation is likely to remain stubbornly high over the coming months and central banks are likely to continue their front-loaded tightening cycles well into next year.

20 October 2021

Emerging Europe Economics Update

Baltic States brush off pandemic’s economic hit

GDP in the Baltic States has already surpassed pre-pandemic levels and we expect this strength to be sustained, with growth outpacing Central Europe and the euro-zone as a whole over the coming years. This strong recovery will use up spare capacity fairly quickly and fuel higher inflation. The main risk is that these economies overheat, causing macro imbalances to build.

18 October 2021

Emerging Europe Economics Weekly

Erdogan playing with fire, Russia’s commodity boom

After putting the final nails in the coffin of the Turkish central bank's credibility with last month's surprise interest rate cut, the grave started to be dug this week with the firing of three MPC members. Further large interest rate cuts seem increasingly likely and the lira is heading in only one direction - the risk of a balance of payments crisis akin to that in 2018 will mount. Meanwhile, Russia's balance sheets have improved markedly in recent months amid the surge in global commodity prices, but we think any additional boost from loose fiscal policy will be limited and the factors supporting the ruble are likely to turn into slight headwinds next year.

15 October 2021

More from Nicholas Farr

Emerging Europe Economics Weekly

NBP a bit more hawkish, but poles apart from the CBR

A slew of comments from policymakers at Poland’s central bank (the NBP) this week suggest that the probability of the central bank delivering a rate hike before the end of this year has increased. Elsewhere, remarks from the Russian central bank (the CBR) governor in an interview with The Financial Times reinforce the point that policymakers there will do all they can to reduce inflation expectations. This supports our view that the CBR is likely to deliver another 75bp of hikes by the end of this year.

6 August 2021

Emerging Europe Economics Update

Hawkish CNB flags faster pace of monetary tightening

The Czech National Bank (CNB) raised its two-week repo rate by 25bp to 0.75% at today’s meeting, and its communications signalled that policymakers will raise rates more quickly than they had previously signalled to tackle above-target inflation. We expect that the policy rate will be hiked to 1.50% by end-2021, and 2.50% by end-2022 (previously 1.00% and 2.00%).

5 August 2021

Emerging Europe Economics Update

Is it time to worry about Romania’s current account?

The widening of Romania’s current account deficit to a 10-year high partly reflects a rise in foreign firms’ reinvested earnings which is not a concern. But the trade balance has also worsened and the share of the deficit financed by stable forms of capital inflows has fallen. This makes the leu vulnerable to a deterioration in investor sentiment, and presents an upside risk to our interest rate forecast.

3 August 2021
↑ Back to top