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, Marcus How, Gabor Hunya, Branimir Jovanović, Niko Korpar, Sebastian Leitner, Isilda Mara, Olga Pindyuk, Sandor Richter, Marko Sošić, Bernd Christoph Ströhm, Maryna Tverdostup, Zuzana Zavarská and Adam Żurawski

wiiw Forecast Report No. Spring 2024, April 2024
156 pages including 29 Tables and 50 Figures

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Executive summary
by Olga Pindyuk
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1. Global assumptions: US driving recovery amid geopolitical risks
by Richard Grieveson
The global economy is strengthening, with the US remaining strong, and better data out of China in recent months. Encouragingly, the euro area economy is also starting to show some signs of recovery, with inflation falling more quickly than we previously expected, boosting real incomes, but the recovery in the manufacturing sector is yet to arrive. The biggest risk to the recovery at present comes from geopolitics, specifically in the US, where the outcome of the next presidential election will be crucial, and in the Middle East, where heightened tensions involving a number of regional players risk causing a significant and prolonged rise in energy prices. If that happens, it will push global inflation back up, weighing on consumption, and will also delay monetary loosening by the major central banks.
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2. CESEE Overview: The crisis is over, but its scarring effects are hindering recovery
by Olga Pindyuk
In the next three years, annual GDP growth in CESEE will be about 3%; that will allow economic convergence with the euro area, but at a relatively slow speed. Growth will be driven mainly by household consumption supported by rising real wages amid decelerating inflation. Investment will be constrained by limited access to financing and will be insufficiently high to promote a faster green and digital transition and to ensure the structural changes needed to boost the region’s competitiveness. Risks to the outlook remain mostly on the downside, with the most significant of these related to geopolitics.
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3. Austria and CESEE: Regional growth to continue to provide an important stimulus for Austria
by Doris Hanzl-Weiss
Growth in CESEE will be higher than in the euro area during the forecast period, providing impetus for the Austrian economy. The potential expiration of the gas transit agreement between Gazprom and Ukraine at the end of 2024 presents a challenge for countries along the gas route from Ukraine, through Slovakia to Austria. Neighbouring CESEE countries are again a primary focus for Austrian investors, with Croatia and Hungary the main targets. Austrian companies are largely maintaining their presence and activity in Russia.
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4. Wavering consensus? The impact of the 2024 bumper election year on Ukraine and European security
by Marcus How
The Russian invasion of Ukraine continues to be the main driver of political risks in CESEE. These risks are currently elevated, due to the elections to the European Parliament, the US presidency and Congress, as well as to the parliaments of states in the region. The European elections are likely to result in a rightward tilt at the EU level, fraying the consensus surrounding those European Commission flagship policies that are pertinent to strategic autonomy. The ‘Mitteleuropean’ axis of populist illiberalism may begin to consolidate, with the Austrian elections being of particular importance. This would complicate EU efforts to agree new aid for Ukraine – efforts that are especially significant given the political instability in the US. If Donald Trump is elected president in November, the US commitment not only to Ukraine but also to NATO will very likely end, increasing the security risks. The EU and European NATO members would be able to compensate for some (but not all) of the US commitments – if it can muster the political will. However, this political will may diminish, given the influence of the aforementioned internal and external factors.
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5. Convergence Monitor
by wiiw statistics department
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