Prospects for Central-Eastern Europe in 2018

Subject Prospects for Central-Eastern Europe in 2018. Significance The economic outlook for Central Europe and the Baltic states (CEB) for the first half of next year, at least, looks bright. The consumption-led rebound in GDP across CEB in the second half of 2017 will continue to drive economic performance in early 2018. For the Western Balkans, the dominant international issue will be the future of the EU, but the most significant developments will be on the domestic front as peoples and governments react to the EU’s ongoing travails.

Subject Prospects for Central-Eastern Europe in 2017. Significance In the absence of robust business confidence, Central Europe and the Baltic states (CEB) will implement short-term monetary and fiscal policies to support growth; GDP growth will suffer from global market vicissitudes and rising political tensions in key trading partners inside and outside the EU. The crisis in the EU will continue to bear down on South-Eastern Europe (SEE), bringing an effective end to the policy of enlargement.


Subject Labour remittances and the Ukrainian economy. Significance Ukrainians account for one of the largest migration waves to the EU, thanks to visa-free travel arrangements under the Association Agreement. As emigration has risen since 2014, remittances sent home by workers abroad have risen to 8-9% of GDP. Ukraine does not depend on remittances to same extent as some regional countries, but the inflows are now important for economic stability. Impacts Migrants may become an important constituency pushing for political change. Increased migration to EU states is reorienting Ukraine away from Russia. Ukrainians are contributing to economic performance in host countries in Central-Eastern Europe.


Subject Alleged discrepancies between the quality of foods on sale in the western and eastern EU. Significance Governments in eastern EU member states are recycling long-heard rumours that multinational food brands sold there are of poorer quality than in western states. Tests by some national authorities appear to confirm these fears. Such practices would not be illegal, but they exacerbate broader worries about second-class citizenship in Central-Eastern Europe (CEE), compounded by uncertainty over the direction the EU will take in coming months. Impacts The east-west divide will deepen as a new front is opened ahead of a likely EU reform push later this year. CEE’s political significance will receive a momentary boost as countries show a united front on one of only a handful of issues. A reaction against multinationals from within the EU could make protectionism more respectable elsewhere in the world.


Subject Prospects for Central-Eastern Europe to end-2019. Significance After a strong cyclical upswing in 2017-18, the outlook for GDP growth in Central Europe and the Baltic states (CEB) will be shaped by several political milestones, notably Poland’s general election and Brexit, while softer economic conditions in the euro-area will test the resilience of the region’s export-dependent economies.


Subject Trump’s effect on US-European relations. Significance Staff turnover and fragmented decision-making at the highest level in the White House and State Department are leaving mounting problems in Central-Eastern Europe (CEE) to the Defense Department and NATO. Along the Eastern frontier, concerns over Russian aggression have led to competition for more US attention from the Baltic to the Black Sea. Impacts Acceptance of the ‘America First’ doctrine will indirectly authorise nationalist politics in Europe. Trump’s admiration for their methods will empower East European ‘strongmen’. Turkey will further distance itself from core principles of NATO collaboration.


Subject Prospects for Central-Eastern Europe in 2016. Significance The collapse of the political left underlines a populist shift in the Central European-Baltic (CEB) political landscape. This is unlikely to reverse, owing to geopolitical tensions across the EU arising from the migrant crisis. South-eastern Europe (SEE) will remain in heightened volatility in 2016, weakened by international crises and problems of governance, corruption and ethnic division, the major flashpoints being Bosnia-Hercegovina, Kosovo and Macedonia.


Subject Prospects for Central-Eastern Europe in 2022. Significance Tensions with eastern neighbours could distract Brussels from democratic stagnation in several of the eleven eastern member states (EU-11). Vaccine hesitancy will remain high as governments fail to deal with rampant disinformation on the benefits of inoculation. In the Western Balkans, political crises will centre on Kosovo and Bosnia-Hercegovina (BiH), against the backdrop of weakening US and EU influence, distracted by other matters.


Subject Trump enthusiasts in Central-Eastern Europe. Significance Some of the most vocal and high-ranking supporters abroad of the Republican candidate for the US presidency, Donald Trump, are in Central-Eastern Europe (CEE). The first sitting head of state or government to endorse Trump's bid was Hungarian Prime Minister Viktor Orban; he has been joined by Czech President Milos Zeman. Given Trump's hints at waiving the US commitment to defending this strategically volatile region, this may mask a degree of cognitive dissonance. However, CEE leaders are pursuing domestic games and betting on the star of illiberalism rising, with good reason. Impacts The EU will face disunity and, potentially, disintegration, should it not alter its current 'single-speed' form. Russian President Vladimir Putin will get a freer hand; provocations against NATO and neighbouring states are likely to be ramped up. The appeal of the Western liberal order will dissipate and new, illiberal forms of development will proliferate in the world.


Subject The economic outlook for the five leading CEE economies. Significance First-quarter GDP outturns in Central-Eastern Europe (CEE) were mixed. While Poland and Hungary surprised on the upside, the pace of economic expansion was less robust in the Czech Republic and Romania. After a strong cyclical upswing in GDP last year, economic growth appears to have peaked in the first quarter and economic growth is likely to moderate in 2018. Impacts In 2018, Romania, Slovakia and Poland will grow the fastest; the Czech Republic and Hungary will grow less robustly. With some economies managing to absorb EU funds at a faster pace than others, growth patterns are expected to diverge further. In Poland and Hungary, monetary conditions are expected to remain ultra-loose until at least end-2018. Weaker GDP growth rates are expected next year, particularly in the absence of structural reforms to tackle labour shortages.


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