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Fighting the downturn

  • CEE is expected to face the deepest recession of the century in 2020. Exports and imports will contract sharply as global supply chains crumble. Domestic demand will be hit by rising unemployment, corporate failures and uncertainty.
  • Support from governments and central banks is unprecedented, with both fiscal and financial conditions expected to be loosened, in contrast to 2008-10.
  • The 2021 recovery is unlikely to recoup all losses incurred this year, with employment and capex lagging the rebound. In addition, rebuilding supply chains could prove cumbersome.
  • In EU-CEE1, we expect GDP to fall by 9.4% in 2020 and to grow by 8.5% in 2021.
  • Russia’s economy could contract by around 5.4% in 2020, with a 3.8% rebound next year.
  • In Turkey, GDP could fall by approximately 5.6% this year and grow by 6.6% in 2021.
  • We expect additional rate cuts in Czechia, Poland, Russia, Serbia and Turkey. Only Czechia and Poland are likely to consider raising rates in 2021.
  • In 2020, inflation is likely to fall below target in EU-CEE and the Balkans, and to single digits in Turkey. Base effects, supply shocks and large fiscal impulses will support reflation in 2021. In Russia, inflation could rise above target in 2020 and fall below 4% in 2021.
  • Most CEE currencies are undervalued. Long-end local-currency bonds are attractive given central bank purchases.
  • Positive potential outcomes of the COVID-19-induced crisis are a stronger civil society, a reset of voter priorities, leaner bureaucracies and shorter supply chains in Europe.
  • Negative potential outcomes might be a further democratic backslide, poor EU fund allotment for 2021-27 and social unrest.

Source: UniCredit Research - CEE Quarterly, 15 April 2020, Executive summary


1 EU-CEE includes Bulgaria, Croatia, Czechia, Hungary, Poland, Romania, Slovakia and Slovenia, all CEE countries that are members of the EU.