Wide Angle Shot: Fresh IMF forecasts — the Central Eastern European Perspective

Overall, since the World Economic Outlook in April, the IMF has raised its 2021 GDP forecasts for the CEE region by 0.7-1 percentage points, and for the euro area and Austria by about 0.5 percentage points. This is mainly due to better-than-expected GDP figures for H1 2021 and Q2 2021, respectively. For 2022, the upward revisions are only 0.1 percentage points. In aggregate, this is roughly in line with our forecast revision pattern in recent months and thus our current Raiffeisen Research forecast data set for 2021 and 2022 (Raiffeisen Research GDP forecasts on average +1.2 percentage points compared to April for 2021, +0.4 percentage points for 2022). Overall, the country-specific deviations between our forecasts and those of the IMF balance out, but for 2022 our Raiffeisen Research GDP growth forecasts are slightly more cautious on average.

Our GDP growth assumptions for 2021 are somewhat more optimistic in Slovakia and Hungary, as well as in Austria; the same applies to Croatia, Bosnia and Romania. For Russia and Belarus, our GDP forecasts are more cautious for 2021 and partly for 2022 (Russia). In the case of Belarus, however, the IMF is much more cautious in 2022. Ultimately, this is about the "crucial question" of when exactly (Western) sanctions will take effect and how successfully foreign trade in Belarus can be redirected towards Russia and China. But the overall picture is almost the same: In sum, stagnation in 2021 and 2022. In the case of Russia, we expect a return to an ultra-conservative fiscal and monetary policy setup after the one-off fiscal stimulus in 2020/2021 and therefore we position ourselves closer to the low expected potential growth for 2022 and are more cautious than the IMF. We see fiscal stimulus as a very specific crisis response pattern — also in view of the domestic election calendar.

In aggregate, we see ourselves somewhat more cautiously positioned than the IMF in our growth forecasts for 2022, which we associate with increasing current downside risks to the economy — from partly overheated levels — due to global trends such as price increases and supply bottlenecks. In part, we see "healthy" market adjustment processes at work here, in light of strong and/or excessive economic policy stimulus. Nevertheless, the CEE region is less affected by global trends, which have led the IMF to significantly sharper growth forecast revisions in the emerging markets than in the developed economies (World Economic Outlook October vs. April). In this respect, the relatively high vaccination rates in CE/SEE (compared to other emerging markets) and the structurally deep integration with the euro area are now paying off. On these risks, see also the IMF blog: "A faltering recovery along entrenched fault lines". Moreover, the euro area and the EU in particular show a fairly balanced growth profile for 2021 to 2023. We share this overall picture based on the extraordinary fiscal policy response to the COVID-19 crisis within the EU, which should — as is currently already visible in some signs — kick-start a sustainable multi-year investment cycle. Interestingly, the IMF has already revised its 2021 growth forecast for China quite considerably downwards (-0.4 percentage points), but left it unchanged in 2022. Here, however, we see certain recently downside risks beyond these indications.

Like us, the IMF assumes lower GDP growth for the current year and (somewhat) higher GDP growth for the coming year than in the euro area as a whole. The forecasts for both 2021 and 2022 have been raised by about half a percent to 3.9% and 4.5%, respectively. Admittedly, the assumption for next year is within the range of the latest forecast revisions (Wifo/IHS), and we also expect growth of 4.5% in 2022. By contrast, the IMF GDP forecast for 2021 appears strikingly low and assumes a marked slowdown in economic activity already in Q3. Apart from the short- to medium-term economic dynamics, the noticeable (structural) growth advantage over Germany (up to one percentage point) from 2023 to the end of the forecast horizon (2026) is striking. As expected, the inflation forecast was revised upwards, but the assumption for the current year of 2.5% (previously: 1.6%) could nevertheless prove to be somewhat too low. At 2.4% (previously: 1.8%), no significant easing is expected for the coming year. An assessment that we consider not unfounded.

Matthias Reith