CESEE outlook

Outlook

The OeNB and the Bank of Finland Institute for Economies in Transition (BOFIT) compile semiannual forecasts of economic developments in selected CESEE countries. They are based on a broad range of available information, including country-specific time series models for Bulgaria, Croatia, the Czech Republic, Hungary, Poland and Romania. The projections for Russia were prepared by the BOFIT and are based on an SVAR model.
 

OeNB-BOFIT outlook for selected CESEE countries

Steady growth in CESEE-6 after temporary dip in early 2016 – trough reached in Russia
Annual economic growth in the CESEE-6 region will reach 3.0% per annum in 2016 and 3.1% in 2017, thus weakening somewhat compared to 2015. In 2018 growth will pick up to 3.3%. The outlook reflects a downward revision compared to our April 2016 projection. In the first half of 2016, investments declined beyond expectations – especially so in Hungary and Poland – following the phasing out of the previous EU funding period. For 2017, we also lowered our prospects for investments in Poland. Alongside solid external demand, domestic demand and in particular private consumption will be the main drivers of growth across the region. Consumption growth will amount to 4.5% in 2016 – 1.2 percentage points above the 2015 outcome – and decelerate somewhat over the projection horizon. Export growth will weaken across the region, except in Poland and Romania, in 2016 compared to 2015 but will regain momentum in 2017 and 2018 in accordance with the external assumption on euro area import growth. The growth differential between CESEE and the euro area will amount to 1.3 percentage points in 2016 and will widen to 1.5 and 1.7 percentage points in 2017 and 2018, respectively.

We forecast Russian GDP to decrease by 1% in 2016, implying an upward revision by 2 percentage points compared to our previous forecast. This is attributable to a higher oil price and a weaker real exchange rate of the ruble than previously assumed. With economic growth at 1%, Russia will move out of recession in 2017. For 2018, we expect the Russian economy to expand by 1.5%. Private consumption is expected to increase somewhat whereas investment activity will still be subdued largely because of great uncertainties regarding the overall economic situation. With an expected moderate increase of the oil price, we see export growth to gain some speed. After weakening in 2016, import growth will revive over the projection horizon. We assume that oil prices will rise steadily over the projection horizon from an average of below USD 45 per barrel in 2016 to USD 55 per barrel in 2018.

The cut-off date for all projections was September 19, 2016.

Outlook for selected CESEE countries (PDF, 228 kB)