Inflation in the countries of Central, Eastern and Southeastern Europe shot into double digits almost everywhere in May. The reason for the enormous inflation was, among other things, the loss of agricultural exports from Ukraine and Russia. According to the Vienna Institute for International Economic Comparisons (WIIW), the scarce supply on world markets is driving prices up rapidly.
The WIIW has released a gloomy summer forecast. In the eleven Eastern European EU countries (Bulgaria, Czech Republic, Estonia, Croatia, Hungary, Lithuania, Latvia, Poland, Romania, Slovenia and Slovakia) inflation has averaged eleven percent this year. The situation is expected to improve in the next two years.
According to WIIW economist Mario Holzner, food, energy and transport are “the prime drivers of inflation”. High food prices in particular are a major problem for the population. In some countries, food represents up to 50 percent of expenditure, in Austria about ten percent.
Consequences of the war in Ukraine
The ongoing war in Ukraine affects the countries studied differently. The economies of the Eastern European countries are likely to grow somewhat this year despite high inflation, not least because of the recovery from the corona pandemic.
On the other hand, economic output will decline in Ukraine, Russia, Belarus and the Republic of Moldova, with Ukraine being the hardest hit. The war there has now caused 60 percent of pre-war GDP damage to buildings and infrastructure. However, Western investment could increase productivity, especially in the IT and agricultural sectors.
In Russia, a GDP minus seven percent is currently expected. “The Russian central bank has acted very smartly and linked the exchange rate to the oil price,” said Holzner. The oil price has risen so much that Russian exports have also risen nominally. However, there are always large fluctuations in the oil price, which are now also reflected in the ruble. Western sanctions against Russia would have an effect in the medium term.
Austria also suffers from the consequences of the war
Due to its economic ties with Eastern Europe, Austria also felt the consequences of the war. The biggest challenge for Austria is the country’s dependence on Russian natural gas and oil. After the blockade of the oil supply by Russia on Wednesday, the WIIW expects a diplomatic solution and a speedy resumption of supplies.
Source: Krone
I’m Wayne Wickman, a professional journalist and author for Today Times Live. My specialty is covering global news and current events, offering readers a unique perspective on the world’s most pressing issues. I’m passionate about storytelling and helping people stay informed on the goings-on of our planet.
