Export-focused CEE countries to benefit

pieCHARTEconomic growth in the Eurozone, which should achieve 1.4% in 2015 and further to 1.8% in 2016, leading to another good year for Central and Eastern Europe (CEE) in 2015, according to the latest CEE Quarterly report by UniCredit Economics & FI/FX Research.

Exports from the region stand to benefit in particular from the economic recovery in the Eurozone, while the ECB’s quantitative easing should stimulate capital flows and keep financing costs low at the same time.

According to UniCredit, the favourable external environment also offers local central banks the opportunity to keep interest rates at record lows for an extended period of time, prolonging the accommodative monetary stances in place. Low financing costs could provide some scope for fiscal support, especially in countries where government deficits and debt are at moderate levels. However, not all countries in Central and Eastern Europe will be able to benefit to the same extent from the favourable conditions.

“Countries with solid fundamentals and advanced reforms will draw the lion’s share of the benefits from the current situation,” said Lubomir Mitov, CEE Chief Economist at UniCredit.

These countries (EU-CEE) include the Baltic States, Poland, Slovakia, Slovenia, the Czech Republic and Hungary, which joined the European Union in 2004, as well as Bulgaria and Romania, which became EU members in 2007.

These export-focused EU-CEE countries should be able to utilise their competitive advantages and close economic ties with Germany to the fullest extent. Real GDP growth should accelerate to 2-3% this year as a result, except for Poland, where growth will exceed 3%.

UniCredit did extend a caveat to its positive forecasts, citing that the interest rate hikes expected later this year from the US Federal Reserve could exert an adverse impact on global risk appetite and result in stagnation or a reversal in capital flows to the CEE countries.