Inflation, stoked by high gas prices, as well as tighter financing conditions are slowing growth in emerging Europe and beyond, the European Bank for Reconstruction and Development (EBRD) reports today in its latest Regional Economic Prospects forecast.

Output in the Bank’s regions, which extend across three continents, is now forecast to grow by 2.2 per cent in 2023, down slightly from the 2.3 per cent predicted in its February update.

Growth is expected to accelerate to 3.4 per cent in 2024 (up from the 3.3 per cent forecast in February) as inflationary pressures gradually subside.

Drivers of the downward revision for 2023 include: the economic impact of the February earthquakes and the expected tightening of credit conditions later in the year in Türkiye; delayed reforms in the southern and eastern Mediterranean; and the effect of subdued growth in advanced economies, persistent inflation and tighter financing conditions in central Europe and the Baltic States.

Growth in 2022 declined to 3.3 per cent, down from 7.2 per cent in 2021 before Russia’s war on Ukraine. And a strong start to 2022, in part thanks to a post-Covid rebound, was followed by two consecutive quarters of negative (quarter-on-quarter) growth in the second half of the year.

This technical recession is the fourth to hit the EBRD regions since the mid-1990s, the others being those after the Asian and Russian economic crises of 1997-98, the global financial crash of 2008-09 and the Covid-19 pandemic.

However, the data underlying the early estimates of quarterly gross domestic product (GDP) growth in 2022 are still preliminary and could be subject to revision.

“We are calling our new Regional Economic Prospects report Getting by,” said Beata Javorcik, the EBRD’s Chief Economist. “Inflation may be on a downward trajectory, but it is still in double digits in more than three-quarters of the countries where we work. We are also seeing lots of evidence that households in the EBRD regions are feeling the pinch, having had to struggle with two recessions, one immediately after the other.”

Inflation may have started to fall as energy prices have moderated, but in March, it still averaged 14.3 per cent across the EBRD regions.

Early results from the next round of the Life in Transition Survey, a representative household survey conducted by the EBRD in partnership with the World Bank, suggest that 55 per cent of households in the EBRD regions cannot save, as they are living from paycheck to paycheck, while 10 per cent of respondents report running up debts.

Most households have very limited buffers; 59 per cent of households in the EBRD regions report being unable to cover their basic expenses for more than a month out of savings.

More data from the Life in Transition Survey will be released later in the year, in tandem with the EBRD’s next Transition Report.

In its February update the EBRD forecast growth across its regions of 2.1 per cent. However, growth averages and projections have since been recalculated using 2022 values of GDP at market exchange rates. The February report used weights based on GDP values for earlier years.