The EBRD is cutting Romania’s growth forecast for 2023 from 2.5% to just 1.8%, according to a report published on Wednesday.

The report added that the economies of Central Asia and Turkey will grow significantly in 2023, offsetting lower performance in emerging Europe.

In emerging Europe, the slowdown reflects high energy prices, persistent inflation (9.7% on average across EBRD regions in July 2023) and sluggish growth in advanced Europe.

EBRD Chief Economist Beata Jaworczyk explains: “Our economists see different growth patterns between regions. The strong growth of the economies of the countries of Central Asia and the worse indicators of the economies of the countries of Central Europe and the Baltic countries reflect different consequences of the development of energy prices, inflation and consumption.”

Gas consumption in developing European countries fell by more than 20% in the winter of 2022-2023, as the shutdown of Russian gas led to a significant increase in energy prices. Oil and gas prices, although lower than pre-war levels with Ukraine, continue to put pressure on economic growth.

The development of European industry is mixed: while gas-intensive industries such as building materials, chemicals, base metals and paper are declining, production is growing in less carbon-intensive sectors such as electrical equipment, machinery and pharmaceuticals.

In Poland, for example, the production of base metals fell by 18% per year, while the production of electrical equipment increased by 21% per year.

Overall, overall industrial production in Europe was lower than expected, contributing to the slowdown in economic growth. However, the labor market remained stable, companies kept jobs, despite significant changes in the structure of production. And in conditions of high inflation, nominal wages have risen rapidly in many economies. In some cases, such as in the Baltic States and Hungary, wage increases have outpaced productivity growth, thereby reducing competitiveness.

In contrast, economic growth in Central Asia and some Caucasus countries remained strong year-on-year in 2022 and the first half of 2023. This was due to intermediate trade to and from Russia, as well as high levels of migration and subsequent remittances, which supported steady growth in real wages.

Regional forecasts

In Central Europe and the Baltic States, where high food and energy costs have constrained household budgets and reduced access to investment finance for small and medium-sized enterprises, growth will average 0.5% in 2023.

In the Western Balkans, the effect of weaker trade with eurozone partners was partially offset by strong tourism in the region’s service-based economy. Gross domestic product (GDP) is forecast to grow by 2% in 2023 and reach 3.4% in 2024.

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