The economic outlook for 2024 in most economies of Central, Eastern and Southeastern Europe, particularly in the EU member states, has significantly improved, according to the Winter Forecast by the Vienna Institute for International Economic Studies (wiiw) for 23 countries in the region.

"The dramatic fall in inflation, sharp rise in real wages, and pick-up in private consumption, combined with imminent cuts in key interest rates, should put growth back on track,” said Richard Grieveson, deputy director of wiiw and lead author of the Winter Forecast, which was released on January 30. 

However, Grieveson pointed to significant downside risks, specifically a continued recession in Germany, escalation of conflicts in Ukraine and Gaza, disruptions in supply chains such as those in the Red Sea, and the potential election of Donald Trump as the next US president, which could seriously jeopardise the recovery. 

“Geopolitical risks dominate, especially concerning the next US administration and the wars in Ukraine and the Middle East,” he said. 

Fast-growing smaller states 

The Winter Forecast identifies small Southeast European states among the fastest-growing economies in the region. Montenegro is projected to achieve 4.0% growth this year, continuing its recovery from the pandemic-induced slump and the impact of Russia's invasion of Ukraine. 

Moldova, which borders Ukraine and was one of the worst hit economies by the war, will grow only slightly more slowly, by 3.7% this year. Albania’s growth is expected at 3.6% and Kosovo’s at 3.5%. 

Kazakhstan, the only Central Asian economy included in the report, is expected to achieve robust growth of 4.2% this year. 

Of the EU member states, the fastest growth is expected in Poland and Romania, both at 3.0%.

Only Estonia is expected to see a contraction in 2024, with the economy shrinking by 0.2%. 

Inflation in EU member countries is expected to more than halve in 2024, averaging 4.7%, according to wiiw. In the Western Balkans, a similar decline is predicted, with an average inflation rate of 3.8%. The report indicates a sharp reduction in inflation in most surveyed countries, with the exceptions of Turkey, Russia and Belarus.

Trump threat to Ukraine 

Despite a better-than-expected performance in 2023 with 5.5% growth, the unpredictability surrounding vital financial aid from the US and the EU has led wiiw to reduce its growth forecast for Ukraine in 2024 by 1.2 percentage points to 3.0%.

Stronger growth is not expected until 2026, when GDP growth of 6.0% is forecast — the fastest in the region — as the recovery is assumed to be underway by then. 

Grieveson warns that a Donald Trump election victory could have serious consequences for the country. 

Olga Pindyuk, Ukraine expert at wiiw, also expressed concerns about the economic uncertainty. "In view of an expected budget deficit of 25% of GDP, which is primarily financed by Western aid, the ongoing delays in the commitment and disbursement of funds naturally have an extremely negative effect on confidence in the Ukrainian economy," Pindyuk said. 

The report also warns about overheating in the Russian economy, which expanded by 3.5% in 2023 despite sanctions. Defence spending has risen to 6% of GDP, which is the highest figure since the collapse of the Soviet Union. 

"Russia is increasingly dependent on the war continuing. The enormous spending on it is like a drug for the economy. Of course, this will also lead to corresponding withdrawal symptoms if this drug is reduced or discontinued,” commented Vasily Astrov, Russia country expert at wiiw.

Signs of overheating are evident from the acute labour shortage caused by the war and an inflation-driven increase in the key interest rate to 16%. As a result, wiiw projects growth to be limited to 1.5% in 2024. By 2026, Russia is expected to be the slowest-growing economy in the region.