A few weeks after Russia’s invasion of Ukraine, the economies of major Western European countries began to falter. But further east it was still boom time, thanks to double-digit wage increases and generous government aid in some countries.

This is no longer the case.

A sharp slowdown in retail sales and falling confidence indicators show that the cost-of-living crisis has overtaken Europe’s eastern flank, where people are now facing a harsh reality as double-digit inflation cuts into their incomes and food price rises exceed 15%-22%. and energy costs are rising rapidly, according to a Reuters analysis.

With household consumption hit, analysts are revising their GDP forecasts downwards and the risk of a European recession looms large.

Sharp reduction in consumption

Families began to tighten their belts. Poles took shorter vacations, Czechs are saving at restaurants and some are looking for second jobs, and in Hungary, where food inflation alone was 22.1% in June, people cut back on food and consumer durables as a falling forint pushes up imports. prices

“One day I went to a bakery and a loaf of bread cost HUF 550. I go the next day and it costs 650. For God’s sake!” exclaimed Lajos, a 73-year-old man who was shopping at the market in the northern city of Esztergom, on the banks of the Danube.

Lajos says these food price hikes have eaten up part of his monthly pension and he will not be able to pay higher utility bills, which will rise after the government lifted price caps last month for what he called higher-income households consumption level. .

Therefore, he makes his own plans.

“I can heat with gas as well as wood… because I have terracotta. Therefore, my wife and I will move into a room, turn on the stove, put on warm sweaters and watch TV.”

Across Hungary, retail sales growth slowed to 4.5% in June from 10.9% in May, with sales of furniture and electronics falling 4.3%, reflecting the impact of large tax cuts and tax transfers provided by the government Prime Minister Viktor Orban. before the April elections have now faded.

Retail sales growth in Poland also slowed to 3.2% year-on-year in June from 8.2% in May, while adjusted retail sales in the Czech Republic, excluding cars and motorcycles, fell 6.0% year-on-year in June , after falling 6.6% in May, according to data released Friday.

“Households have reacted significantly to the increase in the cost of living and consumption of things has started to slow down,” said Peter Virovac, an analyst at ING in Budapest.

According to a survey by the National Bank of Hungary on Friday, commercial banks expect a decrease in demand for loans and tightening of lending conditions in the second half of the year.

Economy is shrinking/ Risk of mild recession

Slowing domestic demand, rising interest rates, government spending cuts and rising business costs look set to slow economic growth in Central Europe in the second half of this year and to slow sharply in 2023.

Citigroup said Hungary’s economy could grow by almost 5 percent in 2022, but there are risks to its 1 percent forecast for next year.

“There is a risk that high energy prices will keep inflation in double digits even into 2023, and our updated domestic euro area forecasts point to downside risks,” it said.

Hungary’s central bank still estimates economic growth at 2.0%-3.0% for 2023 and will publish new forecasts in September.

According to government forecasts, the Polish economy will grow by 3.8 percent this year and 3.2 percent in 2023.

The Czech central bank, which was the first to announce a break in the rate hike cycle on Thursday, is forecasting a recession at the end of the year as it sees the economy shrinking by 0.4% in the fourth quarter of 2022 and by 1% in the fourth quarter of 2022. the first quarter of 2023.

“Our baseline scenario includes a moderate recession — a technical recession — we have two quarters in a row with quarterly declines… It will be a healthy recession that will also bring down inflation,” said Governor Ales Michl.

Poles save money on vacation, Czechs cut back on restaurants outside the home

Although the tourism sector is still expected to boom in the summer, Poles have started saving money for travel, according to travel site Noclegi.pl.

“We see that this season is characterized by shorter trips, on average by one day, and postponing bookings to the last minute,” said Natalia Jaworska, Noclegi.pl expert. Poles also began to save on food.

Data from various restaurant payment services, such as Sodexo, showed a decrease in costs in Czech restaurants as well. The latest survey by the sociological agency STEM, conducted in June, showed that 80% of Czech households have reduced or limited their purchases due to the rapid increase in electricity bills.

Consumer sentiment in the Czech Republic hit a new low in July, according to the statistics office’s monthly survey, while a survey by think tank GKI showed that consumer sentiment in Hungary fell in July to the lowest level since April 2020, during the first wave of the COVID-19 pandemic. .