Economic environment

After a strong economic recovery in the 2nd and 3rd quarters of 2021, the short-term growth outlook for the eurozone was dampened by high levels of new COVID-19 infections, especially the new Omicron variant of the virus and associated containment measures. There were also supply-side shortages and large increases in energy prices that persisted longer than expected. According to Erste Group estimates, the resulting base effects should lead to an inflation rate of 2.6% for the eurozone in 2021. Even if renewed containment measures in the 4th quarter of 2021 have a dampening effect, GDP growth of 5.3% is possible for the eurozone in 2021 (real GDP in 2020: -6.5%).

Based on estimates by the National Bank of Austria (OeNB), the 4th lockdown in November and December 2021 should add up to a 0.5% loss in annual economic output in Austria. At the same time, as for previous lockdowns, the government announced support measures for the sectors and economic actors that were affected. The statistical data from the last 1.5 years of the pandemic show that the negative economic effects of the containment measures have decreased with each lockdown. The negative impact of the renewed containment measures was also partially compensated by the strong economic recovery in the 2nd quarter of 2021 (+13.0%) and 3rd quarter of 2021 (+5.7%). Based on this, the Erste Group expects GDP growth of 4.8% for 2021. The factors driving inflation in the eurozone also apply to Austria, where an inflation rate of 2.8% is expected for 2021.

The strong economic recovery continued throughout the CEE region and almost all the economies are expected to have reached their pre-crisis levels during the course of 2021. While the figures for the 3rd quarter of 2021 confirm the recovery of economic activity, manufacturing is also being adversely affected by supply restrictions here. Economic growth was mainly driven by domestic demand in the 3rd quarter of 2021, while net exports slowed growth everywhere except Croatia. That is one of the reasons the Erste Group ultimately lowered its GDP forecast for the region to 5.5% for 2021. Risks related to the COVID-19 pandemic and supply chain bottlenecks naturally continue to exist. However, tightening the measures aimed at flattening infection curves throughout the CEE region should keep the overall effect on growth small in 2021.

In many CEE countries, inflation exceeded the upper limit of the national bank inflation target in 2021. More than 90% of the average increase in headline inflation observed in the CEE region in 2021 was due to increases in fuel prices, housing and energy costs as well as food prices. Unlike the European Central Bank (ECB) – under the impression of a tighter labour markets, among other things – the regional central banks have already reacted and initiated a cycle of interest rate increases. The Erste Group expects inflation to be 4.5% for the region as a whole in 2021.