WIIW The Vienna Institute for International Economic Studies - Wiener Institut für Internationale Wirtschaftsvergleiche

Vasily Astrov, Alexandra Bykova, Rumen Dobrinsky, Selena Duraković, Meryem Gökten, Richard Grieveson, Doris Hanzl-Weiss, Gabor Hunya, Branimir Jovanović, Niko Korpar, Sebastian Leitner, Ravik Mima, Beate Muck, Olga Pindyuk, Sandor Richter, Bernd Christoph Ströhm, Maryna Tverdostup, Nina Vujanović, Zuzana Zavarská and Adam Żurawski

wiiw Forecast Report No. Spring 2023, April 2023
148 pages including 28 Tables and 53 Figures

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Executive summary
by Olga Pindyuk
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1. Global overview: Weak but resilient
by Richard Grieveson
The euro area economy will only see very moderate growth this year, but the outlook has improved since our last forecast, and the single-currency area has shown an impressive degree of resilience to the fallout from the Russian invasion of Ukraine. Euro area inflation will stay high this year by historical standards, but is well past its peak, and European Central Bank (ECB) interest rates will end 2023 only moderately higher than the current levels, indicating limited additional monetary tightening. Growth in the US is slowing, but has proven to be more resilient than expected, while the Chinese economy will have a much better 2023 on the back of post-COVID reopening. The medium-term outlook for economic growth in the euro area and globally is solid, if unspectacular, which will be positive for CESEE economies. The major risks are to the downside, and are linked above all to the fallout from monetary tightening, as well as to the potential for a further escalation of the war in Ukraine.
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2. CESEE Overview: Sailing through rough waters
by Olga Pindyuk
Although economic activity has weakened considerably compared to last year, most of the economies of CESEE seem to have largely digested the economic shock caused by the Russian invasion of Ukraine and its fallout. All CESEE economies except Hungary and Russia will post positive full-year growth in 2023, and the region overall will outperform the euro area, indicating continued convergence. Most of the CESEE’s top performers this year will be in Southeast Europe. However, while inflation in CESEE has mostly slowed down over the past few months, along with the falling global energy prices, it remains uncomfortably high and continues to weigh on real incomes. We expect inflation to take longer than previously thought to slow down, and we are revising our 2023 forecast upwards for most CESEE countries. Negative risks to the forecast remain strong, including the impact of monetary tightening and uncertainty regarding the duration and outcome of the war in Ukraine.
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3. Austria and CESEE: Resilience of Southeast Europe benefiting Austrian exporters, but ties with Russia yet to break
by Richard Grieveson
The impact of the war and inflation on the Austrian economy is high by Western European standards, but moderate in the context of CESEE. Austria’s trade with CESEE has held up well and continues to outperform its trade with the rest of the world, and Austrian exports to Southeast Europe grew particularly strongly last year, reflecting the relative economic resilience of that region. Exports to Russia held up better than EU exports to Russia as a whole in 2022, as Austria exports many non-sanctioned products to Russia, such as food, while almost two thirds of Austrian firms in Russia are so far continuing operations, despite the invasion – a larger share than in most neighbouring and peer Western countries. Austria remains one of the most important foreign investors across CESEE, but its share of the total inward FDI stock fell in 16 of the 23 CESEE countries covered by wiiw between 2013 and 2021.
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4. Convergence Monitor
by Alexandra Bykova and Beate Muck
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