Call for applications: Klaus Liebscher ­ Economic Research Scholarship

Please e-mail applications to scholarship@oenb.at by the end of October 2022.
Applicants will be notified of the jury’s decision by end-November 2022.

The Oesterreichische Nationalbank (OeNB) invites applications for the “Klaus ­Liebscher Economic Research Scholarship.” This scholarship program gives out­standing researchers the opportunity to contribute their expertise to the research activities of the OeNB’s Economic Analysis and Research Department. This contribution will take the form of remunerated consultancy services.

The scholarship program targets Austrian and international experts with a proven research record in economics and finance, and postdoctoral research experience. Applicants need to be in active employment and should be interested in broadening their research experience and expanding their personal research ­networks. Given the OeNB’s strategic research focus on Central, Eastern and Southeastern Europe, the analysis of economic developments in this region will be a key field of research in this context.

The OeNB offers a stimulating and professional research environment in close proximity to the policymaking process. The selected scholarship recipients will be expected to collaborate with the OeNB’s research staff on a prespecified topic and are invited to participate actively in the department’s internal seminars and other research activities. Their research output may be published in one of the department’s publication outlets or as an OeNB Working Paper. As a rule, the consultancy services under the scholarship will be provided over a period of two to three months. As far as possible, an adequate accommodation for the stay in Vienna will be provided. ¹

Applicants must provide the following documents and information:

• a letter of motivation, including an indication of the time period envisaged for the consultancy
• a detailed consultancy proposal
• a description of current research topics and activities
• an academic curriculum vitae
• an up-to-date list of publications (or an extract therefrom)
• the names of two references that the OeNB may contact to obtain further information about the applicant
• evidence of basic income during the term of the scholarship (employment contract with the applicant’s home institution)
• written confirmation by the home institution that the provision of consultancy services by the applicant is not in violation of the applicant’s employment contract with the home institution

Recent economic developments and outlook

Developments in selected CESEE countries

Easing of the pandemic fuels growth and inflation ^{2 , 3}

1 Regional overview

Table 1: Real GDP growth  

	2018	2019	2020	Q1 20	Q2 20	Q3 20	Q4 20	Q1 21	Q2 21
	Period-on-period change in %
Slovakia	3.7	2.5	–4.8	–4.3	–7.1	9.0	0.5	–1.4	2.0
Slovenia	4.4	3.3	–4.2	–4.7	–9.5	12.1	–0.2	1.5	1.9
Bulgaria	3.1	3.7	–4.2	0.4	–10.1	4.3	2.2	2.5	0.6
Croatia	2.8	2.9	–8.0	–0.8	–14.9	5.9	4.1	5.4	–0.2
Czechia	3.2	3.0	–5.8	–3.4	–8.9	6.8	0.7	–0.4	1.0
Hungary	5.4	4.6	–5.0	–0.3	–14.4	10.6	1.6	2.0	2.7
Poland	5.4	4.7	–2.5	0.0	–9.3	7.9	–0.4	1.4	1.6
Romania	4.5	4.1	–3.9	0.5	–10.8	4.8	4.0	2.5	1.7
Turkey	3.0	0.9	1.8	0.1	–11.0	15.9	1.7	1.7	0.9
Russia	2.8	2.0	–3.0	–0.2	–4.4	2.4	1.1	1.0	3.5
CESEE average1	3.4	2.4	–2.4	–0.3	–7.8	7.2	1.2	1.3	2.2
Euro area	1.9	1.5	–6.3	–3.5	–11.7	12.6	–0.4	–0.3	2.2
Source: Eurostat, national statistical offices.
1 Average weighted with GDP at PPP.

In fact, the CESEE economies only reopened in late spring after yet another COVID-19 wave forced governments to reintroduce containment measures. However, the measures were generally less strict than in 2020 ⁴ and mainly targeted contact-intensive sectors like services and retail trade, while industrial production remained largely unrestricted. Personal mobility remained at a comparatively high level given the lighter lockdown regime and apparently weaker compliance. Still, despite increasing pandemic fatigue, the threat from COVID-19 remains, especially as vaccination rates in CESEE are generally lower than in the EU on average and far below the levels necessary to attain herd immunity. Russia, Bulgaria and Romania, for example, have not yet vaccinated even a third of their population.

Composition of growth shifts from exports (and investments) in the first quarter to private consumption in the second quarter of 2021

Import demand also strengthened during the first half of 2021, which translated into a moderately negative contribution of the external sector to GDP growth in most countries of the region. Import momentum reflected rising domestic demand. Gross fixed capital formation was the first to reembark on a growth trajectory in the first quarter of 2021, as booming industrial production fueled capacity utilization and export expectations, and as sentiment brightened. In some countries (e.g. Hungary), housing investment also contributed notably to capital formation. As a result, capital expenditure moderately lifted GDP growth already in the first quarter of 2021 in many countries and continued to fuel economic activity also in the ­second quarter of 2021.

The reopening of retail trade and services in late spring boosted private ­consumption as pent-up demand and – depending on households’ saving ability – ­accumulated lockdown savings sparked a spending spree. Retail and service ­confidence indicators surged in the second quarter of 2021 and consumer confidence recovered as well as credit supply conditions eased. In addition, loan moratoria and widely available furlough schemes had sheltered households from the worst of the crisis. This is in stark contrast to the aftermath of the global financial crisis of 2008, when tight financing conditions, rising unemployment, and falling house and equity prices had affected consumer spending across the region for several years after the initial shock.

Labor market recovery exposes structural bottlenecks

With that, problems with insufficient labor supply amid skill mismatches and labor market bottlenecks, that have plagued CESEE labor markets for many years, again came to forefront. Structural labor market shortcomings are also underlined by the fact that companies are struggling to hire new workers despite the actual labor market slack being notably larger than headline unemployment figures might suggest. According to Eurostat data (not available for Russia), persons with an unmet need for employment ⁵ accounted for an average of 15.5% of the extended CESEE labor force in the second quarter of 2021. This figure is more than twice as high as the average unemployment rate. Employment figures have also not yet embarked on a clear upward trend in most countries. Despite positive base effects, employment growth was stagnant or even negative in the second quarter of 2021 in half the countries under review.

Uptrend in activity and sentiment readings until summer 2021

Industrial production and retail sales were growing at average rates of 25% and 22% respectively in the second quarter 2021, reflecting base effects but also ­genuinely strong dynamics. In some CESEE EU member states, output growth in ­industry spiked at spectacular rates of 60% and more. The willingness of CESEE households to make major purchases has increased steadily throughout the year and ­recently returned to pre-pandemic levels in many countries. This is not only underlined by survey data but also e.g. by new passenger car registrations.

Uptrend interrupted by rising tensions in international supply chains

This cooling-off was related to rising tensions in international supply chains that were increasingly feeding through to production, sentiment and (producer) prices. International manufacturing currently suffers from tight international transport capacities and sector-specific production bottlenecks (e.g. shortages of semiconductors) but also from a broader range of shortages of general inputs (e.g. plastics, paints, metals, wood, rubber products and textiles). A case in point is the car industry, where production sites repeatedly had to be shut down (at least partly). However, problems are clearly not related to a single industry only. ­Purchasing managers’ index surveys suggest that Central European manufacturers are generally struggling with growing backlogs of work coupled with longer ­supplier delivery times and rising prices of inputs. The respective figures climbed to historically high levels in summer of 2021, before retreating somewhat in the third quarter of 2021.

While these supply-side constraints are in principle a sign of healthy global ­demand for industrial produce, there is increasing evidence that supply chain ­bottlenecks are not going to disappear anytime soon and – coupled with labor shortages – could put a brake on the recovery. The IMF, for example, has already reduced its 2021 growth forecast for advanced economies due to such bottlenecks. For more information on prospective developments in CESEE in 2021 and beyond, please consult the recent GDP growth projections in the OeNB’s current Outlook for selected CESEE countries and Russia in this issue of Focus of European ­Economic Integration.

Inflation mounts to highest level in years

In fact, price pressures for consumers have risen concurrently with producer prices. Harmonized consumer price inflation in the CESEE EU member states ­accelerated from 2.4% in January to 5% in September 2021, a level last seen in October 2008. In Russia, inflation climbed to 7.4% and in Turkey it even reached 19.6% in September 2021. Especially in Turkey, however, these extraordinary high levels also reflected substantial currency depreciation.

Consumer price increases strongly driven by the energy component

But price pressures affect virtually the whole consumption basket

Wage growth is gaining speed and inflation expectations are trending up

Recent price developments already show up in survey-based inflation expectations. Currently, a majority of surveyed companies in industry, retail and services expect prices to rise further over the short term according to the European ­Commission’s business and consumer survey. The respective indicators reached ­ten-year highs in several countries in September 2021. While consumer price ­expectations are also trending up, indicators still come in somewhat lower than at their peak in April 2020.

Monetary policy authorities take decisive action

In Russia, annual inflation rose to 7.4% in September 2021, exceeding the ­inflation target of 4% by a wide margin. Reflecting those price pressures, the Bank of Russia raised its policy rate in five steps from 4.25% in March to 6.75% in early October 2021, citing demand growth in excess of domestic supply potential and the pass-through of higher costs to consumers. It also argued that, given elevated inflation expectations, households may be tempted to frontload purchases, thus possibly stirring price growth even further in view of already tight production ­capacities. The Bank of Russia expects inflation to slow down in the fourth quarter of 2021 and to return to target in 2022, driven by base effects, monetary tightening and an oil price-supported strengthening of the ruble. However, the central bank explicitly holds open the prospect of further key rate hikes at its upcoming meetings.

The interest rate path chosen by the Turkish central bank deviates somewhat from the patterns observed in the rest of CESEE. Between September 2020 and March 2021, the policy rate was raised forcefully by ultimately 1,075 basis points to 19%. This was followed, in late September 2021, by a 100 basis point cut to 18%. The central bank argued that the recent increase in inflation had been driven by transitory factors such as rises in food and import prices, supply constraints, higher administered prices and demand generated by the lifting of COVID-19 ­restrictions on some service sector activities. It also stated that last year’s monetary tightening and recent macroprudential measures were still curbing credit growth and domestic demand. At the same time, president Erdogan has repeatedly called for lower interest rates. Following the rate cut, downward pressure on the Turkish lira reintensified and the currency depreciated to an historically weak level in ­October 2021. Currency weakness but also strong inflationary expectations (after price increases had remained in the double digits throughout most of the past four years) will probably add to price pressures in the coming months, while base ­effects will exert some dampening effect on consumer price growth.

Unlike the Turkish lira, the Russian ruble appreciated in recent months on the back of higher oil prices. The Hungarian forint, the Czech koruna, the Polish złoty and the Romanian leu traded rather stably against the euro in September and October 2021, despite policy rate hikes and the fairly hawkish market outlook for future interest rates. This reflects rising real economic uncertainties related to the ­ongoing global shortage of production inputs for the vital industrial sectors, the recent deterioration of the pandemic situation throughout most of the region and capital outflows based on the expectations of a possibly tighter monetary policy stance in the euro area and the United States.

The region’s external surplus is well supported by improving trade balances

On the country level, current account developments were mostly driven by changes in the trade balance that reflected the strong international momentum and dynamic export activity. The trade balance notably lifted the external surplus in the review period in Slovakia, Hungary and Russia (aided by high oil prices in the case of Russia) and kept it on a high level in Slovenia, Czechia and Poland. At the same time, weakening trade balances (also related to lower exports of tourist services) weighed on the external accounts of Bulgaria, Croatia and Turkey. In Turkey, the deterioration has since been halted by the ongoing currency deprecation. Finally, six of the ten countries under review saw their primary income deficits widen, reflecting higher profit repatriations amid the general economic recovery. A larger deficit in primary income lifted Romania’s current account deficit to the highest level among all CESEE countries (–5% of GDP).

Capital flows to the region remain volatile in the review period

This pattern is very much confirmed by more comprehensive financial account data that show notable inflows of portfolio investments in the final quarter of 2020, followed by equally large outflows in the first quarter of 2021 that again moderated somewhat in the second quarter of 2021. The second quarter of 2021 also brought about a return of inflows from other investments to the region, for the first time since spring 2020. FDI inflows remained broadly stable throughout the review ­period and in fact throughout the whole pandemic.

After ten-year government bond yields in CESEE countries remained broadly stable over the summer months, the recent surge of inflation translated into higher price expectations among investors and pushed up nominal yields. Between early September and late October 2021, bond yields increased by some 30 to 40 basis points in Slovenia, Slovakia and Russia, by 75 to 100 basis points in Czechia, Hungary, Poland and Romania and by 270 basis points in Turkey (Croatian yields remained more or less stable). This compares with an increase of about 35 basis points in the euro area and the United States.

CESEE banking sectors recovered rather quickly from the impact of the previous year’s recession

Strong demand drove up credit growth, while supply conditions remain tight for corporates

NPL ratios might increase somewhat once government support is withdrawn

Crisis provisioning made in 2020 is slowly being released as the banking sector’s outlook improves

2 Slovakia: strong economic rebound accompanied by rising inflation

Owing mainly to government job retention schemes and other measures to preserve employment, the detrimental impact of the pandemic on the labor market has been contained so far. The shock has been weathered on the basis of fewer working hours rather than job losses, even though hard-hit sectors (mainly ­services) and particularly vulnerable workers experienced dismissals. Hence, while the ­unemployment rate remained broadly stable in the first half of 2021, a full-fledged impact on the labor market will only unfold once the government schemes expire. Moreover, long-term unemployment remains a persistent issue. Headline inflation has been rising sharply since the beginning of 2021 and came in at 4% in September 2021, the highest figure since 2012. The acceleration has been largely driven by soaring prices of services (particularly those related to housing), industrial goods, processed food and increasingly swelling energy prices. Following ­direct fiscal support, loan guarantees and tax deferrals amounting to some 3.7% of GDP in 2020, fiscal response measures related to the coronavirus crisis worth 3.8% of GDP have been budgeted for 2021. Support measures in the form of grants for firms and self-employed entrepreneurs, subsidies to labor costs as well as sickness and care benefits have been extended until the end of 2021. The recipients of the support have shifted away from manufacturing toward construction, trade, hospitality and gastronomy as well as cultural and tourism services. In 2021, the general government deficit is expected to widen to more than 7% of GDP. Consequently, public debt is projected to go up from 48.1% of GDP in 2019 to above 61% of GDP in 2021. The Slovak economy has benefited from the accommodative monetary stance in the euro area. The countercyclical capital buffer rate for banks in the country was reduced from 2% to 1% between April and July 2020 (i.e. during the first COVID-19 wave) and was kept at that level also in the review period.

Table 2: Main economic indicators: Slovakia  

	2018	2019	2020	Q1 20	Q2 20	Q3 20	Q4 20	Q1 21	Q2 21
	Year-on-year change of period total in %
GDP at constant prices	3.7	2.5	–4.8	–3.5	–10.9	–2.5	–2.1	0.2	9.6
Private consumption	4.1	2.7	–1.0	1.1	–4.0	1.1	–2.2	–5.5	5.0
Public consumption	0.1	4.6	0.3	2.0	–4.9	0.3	3.1	–1.8	8.7
Gross fixed capital formation	2.7	6.6	–12.0	–7.8	–15.2	–8.5	–15.4	–10.0	5.6
Exports of goods and services	5.2	0.8	–7.5	–5.7	–26.5	0.1	1.8	10.0	40.0
Imports of goods and services	5.0	2.1	–8.3	–2.3	–26.4	–5.8	0.6	5.4	39.6
	Contribution to GDP growth in percentage points
Domestic demand	3.3	3.7	–5.5	0.1	–10.6	–7.7	–3.3	–4.1	9.1
Net exports of goods and services	0.3	–1.2	0.7	–3.5	–0.3	5.1	1.1	4.2	0.4
Exports of goods and services	4.9	0.8	–6.9	–5.7	–24.2	0.0	1.7	9.4	28.7
Imports of goods and services	–4.6	–2.0	7.7	2.2	23.9	5.0	–0.6	–5.2	–28.3
	Year-on-year change of period average in %
Unit labor costs in the whole economy (nominal, per person)	4.3	5.2	6.5	9.5	8.3	2.7	5.4	0.7	–1.4
Unit labor costs in manufacturing (nominal, per hour)	4.4	5.6	4.2	7.9	21.0	–5.0	–5.3	–10.7	–19.7
Labor productivity in manufacturing (real, per hour)	4.7	1.2	1.2	–0.7	–11.7	7.6	9.5	11.4	24.5
Labor costs in manufacturing (nominal, per hour)	9.3	6.8	4.9	7.2	6.9	2.3	3.7	–0.5	0.0
Producer price index (PPI) in industry	2.4	1.8	–0.5	1.7	–1.4	–1.3	–1.0	–0.9	4.3
Consumer price index (here: HICP)	2.5	2.8	2.0	2.9	2.0	1.5	1.6	1.0	2.1
	Period average levels
Unemployment rate (ILO definition, %, 15–64 years)	6.6	5.8	6.8	6.0	6.7	7.3	7.0	7.2	7.0
Employment rate (%, 15–64 years)	67.6	68.4	67.5	68.0	66.8	67.5	67.8	67.9	68.8
Key interest rate per annum (%)	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0
	Nominal year-on-year change in period-end stock in %
Loans to the domestic nonbank private sector1	8.4	6.8	6.8	6.2	5.6	5.0	4.5	4.8	4.2
of which: loans to households	11.3	8.0	8.0	7.9	7.0	6.5	6.1	6.0	7.2
loans to nonbank corporations	3.4	4.4	4.4	3.0	3.0	2.1	1.4	2.5	–1.8
	%
Share of foreign currency loans in total loans to the ­nonbank private sector	0.1	0.1	0.1	0.3	0.3	0.1	0.1	0.1	0.1
Return on assets (banking sector)	0.8	0.8	0.5	0.3	0.3	0.5	0.5	0.5	0.8
Tier 1 capital ratio (banking sector)	16.6	16.6	18.1	17.3	18.0	18.0	18.1	18.8	19.2
NPL ratio (banking sector)	3.0	2.8	2.4	2.8	2.7	2.5	2.4	2.6	2.1
	% of GDP
General government revenues	40.7	41.4	41.8	..	..	..	..	..	..
General government expenditures	41.7	42.7	48.0	..	..	..	..	..	..
General government balance	–1.0	–1.3	–6.2	..	..	..	..	..	..
Primary balance	0.4	–0.1	–5.0	..	..	..	..	..	..
Gross public debt	49.6	48.2	60.6	..	..	..	..	..	..
	% of GDP
Debt of nonfinancial corporations (nonconsolidated)	55.0	53.3	55.7	..	..	..	..	..	..
Debt of households and NPISHs2 (nonconsolidated)	42.6	43.7	47.5	..	..	..	..	..	..
	% of GDP (based on EUR), period total
Goods balance	–0.3	–1.0	0.6	–3.5	0.1	2.9	2.5	4.3	0.3
Services balance	1.0	1.3	1.2	1.3	1.3	2.0	0.1	0.7	0.7
Primary income	–1.8	–2.1	–1.6	–0.7	–2.0	–1.7	–1.9	–2.2	–1.7
Secondary income	–1.2	–0.9	–0.6	–1.4	–0.8	–0.8	0.5	–1.9	–0.8
Current account balance	–2.2	–2.7	–0.4	–4.2	–1.4	2.4	1.2	0.9	–1.5
Capital account balance	1.0	0.7	1.2	1.7	0.3	0.6	2.0	0.9	3.1
Foreign direct investment (net)3	–1.3	–2.2	2.1	–1.6	3.9	6.3	–0.5	3.5	–1.6
	% of GDP (rolling four-quarter GDP, based on EUR), end of period
Gross external debt	114.9	112.4	121.2	112.7	123.3	121.7	121.2	118.9	117.5
Gross official reserves (excluding gold)	3.8	5.3	6.6	5.6	6.7	7.0	6.6	8.5	8.1
	Months of imports of goods and services
Gross official reserves (excluding gold)	0.5	0.7	0.9	0.7	0.9	1.0	0.9	1.2	1.1
	EUR million, period total
GDP at current prices	89,357	93,901	91,555	21,492	21,442	24,410	24,211	21,673	23,975
Source: Bloomberg, European Commission, Eurostat, national statistical offices, national central banks, wiiw, OeNB.
1 Foreign currency component at constant exchange rates.
2 Nonprofit institutions serving households.
3 + = net accumulation of assets larger than net accumulation of liabilities (net outflow of capital).
– = net accumulation of assets smaller than net accumulation of liabilities (net inflow of capital).

3 Slovenia: underlying inflation pressure remains low despite strong GDP expansion

According to the latest forecast by the European Commission, Slovenia’s budget deficit is expected to rise to 8.5% of GDP in 2021 despite a substantial economic rebound. The widening of the deficit will be caused by extended COVID-19 ­measures, such as wage compensation for short working hours, wage supplements for public sector employees, the partial coverage of companies’ fixed costs and a significant increase in public investments, which will partly be financed under the Recovery and Resilience Facility (RRF). In late July 2021, the Council of the ­European Union approved RRF funds for Slovenia in the magnitude of EUR 1.8 billion in grants and EUR 0.7 billion in loans, the first installment of which (EUR 231 million) arrived in mid-September. According to its RRF plan, Slovenia will use around 42% of its allocation to measures that support climate objectives. The plan devotes 21% of total financing to the digital transition, while the rest will be spent on reinforcing Slovenia’s economic and social resilience (e.g. investments in healthcare, long-term care, public housing, enhancing productivity and innovation).

Annual HICP inflation has picked up substantially since the beginning of 2021, rising from around –1% to +2.7% by September 2021. The acceleration has been primarily attributable to energy prices, where deep deflation at the turn of the year has transformed into double-digit inflation, affected both by base effects and intensified energy price rises. Core inflation, excluding energy and unprocessed food, was only modestly higher than at the beginning of the year and stood at 1.3% in September 2021. However, inflation for nonenergy industrial goods accelerated, mainly on the back of supply chain disruptions, rising commodity and producer prices. By contrast, services price inflation has slowed to around zero over the ­reference period, in part caused by changes in the weighting in the HICP basket.

Credit dynamics have improved since the second quarter of 2021, mainly on the back of higher demand for loans but also thanks to banks having discontinued the tightening of lending standards. The contraction of credit to the corporate sector has moderated (in line with strengthening investment activity), while credit to households has started to grow again. Loans for house purchase grew rapidly, while the contraction of consumption loans has moderated.

The banking sector’s profitability improved during the first half of 2021, almost exclusively due to the net release of impairments and provisions, reflecting the improved economic situation and outlook. Net interest income was lower than a year earlier due to low interest rates and reduced lending activity as was noninterest income. Banks’ portfolio quality has developed favorably, with the notable exception of the accommodation and food service sector and household consumption loans. It remains to be seen whether portfolio quality deteriorates once the legislative debt service moratoria gradually expire (by end-2021 at the latest).

Table 3: Main economic indicators: Slovenia  

	2018	2019	2020	Q1 20	Q2 20	Q3 20	Q4 20	Q1 21	Q2 21
	Year-on-year change of period total in %
GDP at constant prices	4.4	3.3	–4.2	–1.3	–11.0	–1.4	–3.1	1.7	16.3
Private consumption	3.6	4.8	–6.6	–3.1	–13.0	1.4	–11.1	–0.3	18.8
Public consumption	3.0	2.0	4.2	5.3	3.2	5.0	3.5	0.5	1.4
Gross fixed capital formation	9.7	5.5	–8.2	–6.6	–17.6	–5.7	–2.7	7.8	19.2
Exports of goods and services	6.2	4.5	–8.7	–0.8	–23.5	–8.9	–0.7	1.4	30.2
Imports of goods and services	7.1	4.7	–9.6	–1.2	–23.6	–12.2	–0.8	0.9	34.9
	Contribution to GDP growth in percentage points
Domestic demand	4.6	3.0	–4.2	–1.5	–8.8	–3.2	–3.1	1.2	16.6
Net exports of goods and services	–0.1	0.3	–0.1	0.2	–2.2	1.8	0.0	0.5	–0.3
Exports of goods and services	5.1	3.8	–7.3	–0.7	–20.3	–7.4	–0.6	1.2	21.8
Imports of goods and services	–5.3	–3.6	7.2	0.9	18.0	9.2	0.6	–0.7	–22.1
	Year-on-year change of period average in %
Unit labor costs in the whole economy (nominal, per person)	2.7	4.2	7.7	5.1	13.2	3.0	9.0	3.7	–5.5
Unit labor costs in manufacturing (nominal, per hour)	–2.7	0.1	8.0	3.2	21.8	5.2	3.0	2.6	–14.8
Labor productivity in manufacturing (real, per hour)	6.5	4.0	–4.4	1.6	–14.6	–2.9	–1.2	3.9	22.5
Labor costs in manufacturing (nominal, per hour)	3.6	4.0	3.1	4.8	3.9	2.2	1.8	6.5	4.4
Producer price index (PPI) in industry	2.1	0.6	–0.3	–0.1	–0.6	–0.3	–0.2	1.1	3.6
Consumer price index (here: HICP)	1.9	1.7	–0.3	1.6	–1.2	–0.6	–0.9	–0.6	2.1
	Period average levels
Unemployment rate (ILO definition, %, 15–64 years)	5.2	4.5	5.0	4.6	5.2	5.2	5.1	5.7	4.4
Employment rate (%, 15–64 years)	71.1	71.9	70.9	71.5	70.0	70.8	71.1	68.1	71.9
Key interest rate per annum (%)	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0
	Nominal year-on-year change in period-end stock in %
Loans to the domestic nonbank private sector1	1.9	4.3	4.3	5.1	1.3	0.1	–1.0	–1.9	0.9
of which: loans to households	6.4	5.8	5.8	4.1	1.6	1.2	0.1	0.8	2.9
loans to nonbank corporations	–2.2	2.8	2.8	6.1	1.1	–1.0	–2.2	–4.5	–1.1
	%
Share of foreign currency loans in total loans to the ­nonbank private sector	2.0	1.7	1.4	1.6	1.6	1.5	1.4	1.3	1.2
Return on assets (banking sector)	1.3	1.3	1.0	0.6	0.6	1.2	1.0	0.8	1.0
Tier 1 capital ratio (banking sector)	17.6	17.8	16.7	16.3	17.7	18.2	16.7	16.5	17.0
NPL ratio (banking sector)	4.0	2.2	1.9	2.2	2.0	1.8	1.9	1.8	1.0
	% of GDP
General government revenues	44.3	43.7	43.6	..	..	..	..	..	..
General government expenditures	43.5	43.3	52.0	..	..	..	..	..	..
General government balance	0.7	0.4	–8.4	..	..	..	..	..	..
Primary balance	2.8	2.1	–6.8	..	..	..	..	..	..
Gross public debt	70.3	65.6	80.8	..	..	..	..	..	..
	% of GDP
Debt of nonfinancial corporations (nonconsolidated)	51.5	48.5	48.5	..	..	..	..	..	..
Debt of households and NPISHs2 (nonconsolidated)	26.9	26.9	27.8	..	..	..	..	..	..
	% of GDP (based on EUR), period total
Goods balance	2.8	2.7	5.3	5.1	5.3	5.9	4.9	4.7	1.7
Services balance	5.7	5.8	4.2	4.5	3.6	4.4	4.4	4.1	3.8
Primary income	–1.8	–1.8	–1.5	–1.0	–1.7	–2.2	–0.9	–1.0	–1.3
Secondary income	–0.9	–1.1	–1.1	–1.5	–1.3	–0.8	–0.9	–1.0	0.0
Current account balance	5.8	5.6	7.0	7.2	5.9	7.3	7.4	6.8	4.1
Capital account balance	–0.5	–0.4	–0.5	–0.5	–0.2	–0.2	–1.0	1.2	–0.1
Foreign direct investment (net)3	–2.0	–1.5	0.0	–1.5	–1.0	–0.9	3.4	–1.5	–3.9
	% of GDP (rolling four-quarter GDP, based on EUR), end of period
Gross external debt	91.9	90.5	102.7	94.4	101.6	101.6	102.7	106.2	101.3
Gross official reserves (excluding gold)	1.5	1.6	1.9	1.7	1.8	1.8	1.9	2.0	2.0
	Months of imports of goods and services
Gross official reserves (excluding gold)	0.2	0.3	0.3	0.3	0.3	0.3	0.3	0.4	0.3
	EUR million, period total
GDP at current prices	45,864	48,397	46,918	11,349	10,987	12,308	12,275	11,699	13,070
Source: Bloomberg, European Commission, Eurostat, national statistical offices, national central banks, wiiw, OeNB.
1 Foreign currency component at constant exchange rates.
2 Nonprofit institutions serving households.
3 + = net accumulation of assets larger than net accumulation of liabilities (net outflow of capital).
– = net accumulation of assets smaller than net accumulation of liabilities (net inflow of capital).

4 Bulgaria: fourth pandemic wave amid low vaccination rates and political instability

Still, since the beginning of 2021, real GDP has been slowly recovering. After a moderate contraction in the first quarter (–0.5%), it grew by 6.4% year on year in the second quarter of 2021. The accelerating momentum reflected stronger private consumption and booming exports. Although still lagging behind pre-pandemic levels, domestic and foreign tourism numbers rose in comparison to the previous year and bolstered the export of services. As in other European countries, HICP inflation began to rise in the second quarter, from 0.8% in March to 4% in September 2021, mostly due to rising energy prices. There was a mandatory energy price increase in July 2021 for households, and gas prices are expected to increase further in ­October 2021. This contrasts with decreasing prices for recreational and touristic activities (culture, hotels, and restaurants) especially in the summer months.

Several further measures were introduced to back the tourism sector, some financed by the European Commission. The unemployment rate stood at 5.6% by the end of August, which is slightly higher than a year before. In addition, labor market participation is still lower in comparison to pre-pandemic years. The most prominent worker support measure, the 60:40 wage support scheme, was again extended until the end of the year.

New support measures for SMEs, mostly related to receiving grants and loans, were announced in summer, and real wages continued to grow. Despite loan ­moratoria having mostly run out by the end of the first quarter, there was no sharp increase in private sector NPLs. NPLs marginally but steadily declined over the course of the pandemic, standing at 4% at the end of the second quarter of 2021.

The parliament just had to revise the 2021 budget in order to raise additional funds to combat the pandemic. At the same time, government revenues again increased in the second and third quarter of 2021 in comparison to the previous year. The larger budget will be used to extend work and business support measures, to finance ­additional spending on healthcare and additional support for pensioners. Against this background, the current budget target for 2021 amounts to –5.7% of GDP and the gross debt target to 26.7% of GDP. This is notably higher than in 2020 and in part reflects several elections held or to be held in 2021.

After two failed attempts to form a government, Bulgaria will hold its third parliamentary elections for this year on November 14, together with its regular presidential elections. Amid political instability, a caretaker government that was installed in May 2021 substantially revised the national recovery and resilience plan. The revised plan puts more emphasis on education, social policy, and green transition and was submitted to the European Commission in late October 2021. Moreover, at the end of June 2021, the authorities drafted a first detailed plan that is supposed to guide the planned euro adoption.

Table 4: Main economic indicators: Bulgaria  

	2018	2019	2020	Q1 20	Q2 20	Q3 20	Q4 20	Q1 21	Q2 21
	Year-on-year change of period total in %
GDP at constant prices	3.1	3.7	–4.2	1.8	–8.5	–4.2	–4.7	–0.5	6.4
Private consumption	4.4	5.5	0.2	2.9	–4.0	7.1	–4.3	2.8	9.3
Public consumption	5.3	2.0	7.5	6.3	3.9	5.8	12.5	6.7	3.1
Gross fixed capital formation	5.4	4.5	–5.1	–10.2	–11.8	–1.4	0.9	2.1	3.5
Exports of goods and services	1.7	3.9	–11.3	3.2	–19.0	–17.7	–9.3	–3.0	22.2
Imports of goods and services	5.7	5.2	–6.6	0.4	–19.5	–6.1	–1.2	4.0	26.6
	Contribution to GDP growth in percentage points
Domestic demand	5.6	4.4	–0.9	–0.3	–8.8	4.8	–0.1	3.8	8.3
Net exports of goods and services	–2.5	–0.7	–3.2	1.9	0.3	–8.8	–4.6	–4.5	–1.7
Exports of goods and services	1.1	2.5	–7.3	2.2	–11.8	–12.3	–5.3	–2.0	11.6
Imports of goods and services	–3.6	–3.3	4.0	–0.3	12.1	3.5	0.7	–2.5	–13.2
	Year-on-year change of period average in %
Unit labor costs in the whole economy (nominal, per person)	6.3	3.5	7.6	3.1	8.9	8.5	10.5	7.8	4.3
Unit labor costs in manufacturing (nominal, per hour)	5.0	6.6	–0.2	4.6	5.3	–5.7	–4.9	–5.3	–4.8
Labor productivity in manufacturing (real, per hour)	3.6	4.8	5.3	3.9	4.5	3.6	8.8	3.8	6.9
Labor costs in manufacturing (nominal, per hour)	8.7	11.9	4.9	8.7	10.1	–2.2	3.5	–1.7	1.8
Producer price index (PPI) in industry	4.0	3.0	–2.0	1.4	–4.4	–2.8	–2.1	3.6	12.1
Consumer price index (here: HICP)	2.6	2.5	1.2	3.0	1.1	0.6	0.3	0.2	2.2
	Period average levels
Unemployment rate (ILO definition, %, 15–64 years)	5.3	4.3	5.2	4.6	6.0	4.9	5.3	6.4	5.7
Employment rate (%, 15–64 years)	67.7	70.1	68.5	68.1	67.4	69.6	68.8	66.9	67.8
Key interest rate per annum (%)1	..	..	..	..	..	..	..	..	..
	Nominal year-on-year change in period-end stock in %
Loans to the domestic nonbank private sector2	8.3	9.4	9.4	9.1	6.6	5.8	4.3	4.6	6.3
of which: loans to households	11.2	9.5	9.5	9.9	8.0	7.5	6.6	7.1	10.4
loans to nonbank corporations	6.6	9.3	9.3	8.7	5.7	4.7	2.9	3.0	3.7
	%
Share of foreign currency loans in total loans to the nonbank private sector	34.9	33.2	31.9	32.7	32.6	31.6	31.9	31.6	30.9
Return on assets (banking sector)	1.7	1.5	0.7	1.0	0.9	0.8	0.7	1.1	1.0
Tier 1 capital ratio (banking sector)	19.4	19.5	22.1	19.8	22.5	22.3	22.1	21.9	22.3
NPL ratio (banking sector)	5.1	4.2	4.3	4.2	5.2	4.9	4.3	4.1	4.0
	% of GDP
General government revenues	38.6	38.5	39.5	..	..	..	..	..	..
General government expenditures	36.6	36.3	42.9	..	..	..	..	..	..
General government balance	2.0	2.1	–3.4	..	..	..	..	..	..
Primary balance	2.7	2.8	–2.8	..	..	..	..	..	..
Gross public debt	22.3	20.2	25.0	..	..	..	..	..	..
	% of GDP
Debt of nonfinancial corporations (nonconsolidated)	83.5	80.0	82.5	..	..	..	..	..	..
Debt of households and NPISHs3 (nonconsolidated)	23.0	23.1	24.7	..	..	..	..	..	..
	% of GDP (based on EUR), period total
Goods balance	–4.8	–4.8	–3.1	–3.1	–1.3	–2.4	–5.3	–3.8	–4.5
Services balance	7.3	8.0	4.9	5.5	4.5	6.2	3.4	5.3	6.6
Primary income	–4.8	–4.3	–3.5	–3.9	–3.5	–4.0	–2.6	–5.2	–4.8
Secondary income	3.2	2.9	1.0	3.5	1.2	0.3	–0.5	2.1	1.8
Current account balance	0.9	1.8	–0.7	2.1	0.9	0.1	–5.0	–1.6	–1.0
Capital account balance	1.1	1.5	1.6	1.4	2.0	1.5	1.3	1.6	1.3
Foreign direct investment (net)4	–1.3	–1.9	–3.2	–2.1	–2.0	–9.5	1.0	–0.5	–2.2
	% of GDP (rolling four-quarter GDP, based on EUR), end of period
Gross external debt	66.3	62.6	66.1	61.0	62.0	66.6	66.1	63.5	62.9
Gross official reserves (excluding gold)	42.1	37.7	47.5	39.8	42.8	47.7	47.5	43.8	44.1
	Months of imports of goods and services
Gross official reserves (excluding gold)	8.0	7.4	10.4	7.9	8.9	10.3	10.4	9.5	9.0
	EUR million, period total
GDP at current prices	56,112	61,240	60,643	13,290	14,201	16,196	16,956	13,833	15,935
Source: Bloomberg, European Commission, Eurostat, national statistical offices, national central banks, wiiw, OeNB.
1 Not available in a currency board regime.
2 Foreign currency component at constant exchange rates.
3 Nonprofit institutions serving households.
4 + = net accumulation of assets larger than net accumulation of liabilities (net outflow of capital).
– = net accumulation of assets smaller than net accumulation of liabilities (net inflow of capital).

5 Croatia: successful tourism season bolsters economic recovery

While the tourist season was better than expected, tourist arrivals in the first half of 2021 still lagged behind the first-half 2019 figures. However, Croatia’s ­current account recorded a notable deficit in the second quarter of 2021, primarily due to the widening of the foreign trade deficit driven by buoyant import growth and, to a lesser extent, the deterioration in the primary income balance.

Inflation has picked up throughout 2021 and increased to 3.5% in September 2021 mostly on the back of rising energy prices. Core inflation climbed to 2.2% in September 2021, after ­oscillating around 1% annually over the past two years.

The increase of the minimum wage by 4.6% in January 2021 and the government measures in response to the pandemic have supported wage growth, which amounted to 5% in the second quarter of 2021. To mitigate the labor market impact of the pandemic and the earthquakes, a job retention scheme for affected businesses was implemented from July 2021. The unemployment rate decreased from 8.5% in December 2020 to 7.6% in August 2021. Strengthened economic activity due to the successful tourism season and government support measures positively ­contributed to this development. Also, the number of employed people increased in August by 2.1% in annual terms. The highest growth in the number of workers was recorded in the hospitality industry and is hence seasonal. At the same time, one of the challenges Croatia is facing is the shortage of skilled workers.

The Croatian banking system’s return on assets grew to 1.1% at the end of the first half of 2021. The tier 1 capital ratio stood at 25% at the end of June 2021 and the NPL ratio was 5.1% compared to 5.4% at the end of 2020 due to an increase in total loans and advances by 3.2% and a decline in NPLs by 3.5%. The decline mostly stemmed from NPLs of nonfinancial corporations. As such, it seems that credit guarantees and other support measures have been supportive in helping viable companies come through the pandemic.

Long-run interest rates have remained at low levels in 2021. The ten-year government bond yield stood at 0.43% in August 2021, roughly the same level as in the months preceding the pandemic.

The European Commission has adopted a proposal to grant Croatia EUR 6.3 billion (12.8% of 2020’s GDP) from its recovery and resilience plan. EUR 818 million in prefinancing were disbursed on September 28, 2021.

The participation in the exchange rate mechanism (ERM II) since July 2020 has been relatively smooth so far. The Croatian central bank has intervened twice on foreign exchange markets during 2021. In April, it sold EUR 190 million to local banks to counter the depreciation pressures on the local currency, while, on June 16, it bought EUR 120 million from local banks to counter appreciation ­pressures. According to recent statements by the Croatian prime minister, Croatia’s target date for euro adoption is still January 1, 2023.

Table 5: Main economic indicators: Croatia  

	2018	2019	2020	Q1 20	Q2 20	Q3 20	Q4 20	Q1 21	Q2 21
	Year-on-year change of period total in %
GDP at constant prices	2.8	2.9	–8.0	0.9	–14.4	–10.1	–7.2	–0.7	16.1
Private consumption	3.3	3.5	–6.2	0.8	–13.8	–7.3	–4.4	–0.4	18.1
Public consumption	2.3	3.4	3.4	6.1	1.7	3.0	3.1	0.2	4.0
Gross fixed capital formation	6.5	7.1	–2.9	3.1	–14.7	–3.0	4.2	4.6	18.3
Exports of goods and services	3.7	6.8	–25.0	–2.0	–40.7	–32.3	–9.8	–0.9	40.9
Imports of goods and services	7.5	6.3	–13.8	–5.0	–27.5	–14.1	–7.6	–2.1	30.3
	Contribution to GDP growth in percentage points
Domestic demand	4.6	2.7	–2.3	–1.6	–9.4	8.0	–7.2	–2.1	15.7
Net exports of goods and services	–1.8	0.2	–5.8	2.1	–5.2	–17.5	–0.1	0.8	–0.1
Exports of goods and services	1.9	3.4	–13.0	–0.7	–20.0	–24.2	–4.1	–0.3	13.7
Imports of goods and services	–3.7	–3.2	7.2	2.8	14.8	6.7	4.0	1.1	–13.8
	Year-on-year change of period average in %
Unit labor costs in the whole economy (nominal, per person)	..	..	..	..	..	..	..	..	..
Unit labor costs in manufacturing (nominal, per hour)	6.4	11.4	2.5	4.8	6.7	1.0	–2.5	–3.1	–7.5
Labor productivity in manufacturing (real, per hour)	2.2	–7.2	–2.4	–4.8	–6.1	–1.6	2.9	4.9	9.6
Labor costs in manufacturing (nominal, per hour)	8.9	3.6	–0.1	–0.3	0.2	–0.6	0.3	1.7	1.4
Producer price index (PPI) in industry	2.2	0.8	–3.2	–0.1	–5.4	–4.2	–2.9	0.9	8.0
Consumer price index (here: HICP)	1.6	0.8	0.0	1.2	–0.4	–0.5	–0.2	0.7	2.2
EUR per 1 HRK, + = HRK appreciation	0.6	0.0	–1.6	–0.9	–2.1	–1.8	–1.6	–1.1	0.7
	Period average levels
Unemployment rate (ILO definition, %, 15–64 years)	8.6	6.7	7.6	7.1	6.5	7.5	9.2	10.0	7.9
Employment rate (%, 15–64 years)	60.7	62.1	62.0	61.4	62.2	63.0	61.5	61.4	63.6
Key interest rate per annum (%)	..	..	..	..	..	..	..	..	..
HRK per 1 EUR	7.4	7.4	7.5	7.5	7.6	7.5	7.6	7.6	7.5
	Nominal year-on-year change in period-end stock in %
Loans to the domestic nonbank private sector1	2.4	3.4	3.4	4.7	2.3	3.0	2.8	1.3	2.4
of which: loans to households	4.7	6.7	6.7	5.3	3.0	3.2	1.6	1.9	3.7
loans to nonbank corporations	–0.8	–1.3	–1.3	3.9	1.2	2.8	4.8	0.4	0.5
	%
Share of foreign currency loans in total loans to the ­nonbank private sector	54.7	51.5	52.0	51.5	51.4	51.1	52.0	52.1	51.8
Return on assets (banking sector)	1.2	1.4	0.6	1.0	0.8	0.7	0.6	0.9	1.1
Tier 1 capital ratio (banking sector)	22.1	24.0	25.0	22.7	24.0	24.3	25.0	24.6	25.0
NPL ratio (banking sector)	7.5	5.5	5.4	5.3	5.4	5.5	5.4	5.3	5.1
	% of GDP
General government revenues	46.3	47.5	48.0	..	..	..	..	..	..
General government expenditures	46.1	47.2	55.4	..	..	..	..	..	..
General government balance	0.2	0.3	–7.4	..	..	..	..	..	..
Primary balance	2.5	2.5	–5.4	..	..	..	..	..	..
Gross public debt	74.3	72.8	88.7	..	..	..	..	..	..
	% of GDP
Debt of nonfinancial corporations (nonconsolidated)	91.7	85.9	94.2	..	..	..	..	..	..
Debt of households and NPISHs2 (nonconsolidated)	33.9	34.5	38.2	..	..	..	..	..	..
	% of GDP (based on EUR), period total
Goods balance	–18.6	–19.3	–17.6	–20.6	–17.0	–15.9	–17.2	–20.8	–19.0
Services balance	17.8	19.0	10.7	3.3	6.1	26.6	5.1	3.0	9.5
Primary income	–0.6	–0.1	2.3	2.5	1.3	0.3	5.4	1.1	–0.1
Secondary income	3.3	3.5	4.4	3.6	5.5	3.9	4.9	6.0	3.8
Current account balance	1.9	3.1	–0.1	–11.2	–4.1	14.9	–1.8	–10.7	–5.8
Capital account balance	1.3	1.6	2.2	1.8	2.5	1.8	2.7	2.2	2.5
Foreign direct investment (net)3	–1.6	–6.3	–1.4	–2.9	–1.4	–1.7	0.5	–4.0	–2.6
	% of GDP (rolling four-quarter GDP, based on EUR), end of period
Gross external debt	82.3	75.1	82.5	75.0	79.6	81.1	82.5	88.4	85.6
Gross official reserves (excluding gold)	33.6	34.1	38.5	30.6	33.4	36.3	38.5	42.9	41.7
	Months of imports of goods and services
Gross official reserves (excluding gold)	7.9	7.8	9.3	7.1	8.0	8.8	9.3	10.3	9.7
	EUR million, period total
GDP at current prices	51,956	54,243	49,287	12,151	11,371	13,463	12,302	12,115	13,751
Source: Bloomberg, European Commission, Eurostat, national statistical offices, national central banks, wiiw, OeNB.
1 Foreign currency component at constant exchange rates.
2 Nonprofit institutions serving households.
3 + = net accumulation of assets larger than net accumulation of liabilities (net outflow of capital).
– = net accumulation of assets smaller than net accumulation of liabilities (net inflow of capital).

6 Czechia: sluggish rebound from an epic trough amid high inflation outlook

The current account balance still recorded a significant surplus also in the first half of 2021. This reflects not only the performance of the goods and services balance but also the rather low deficit of the primary income balance on the back of still restricted outflows of dividends. For 2021, the parliament mandated a budget ­deficit of CZK 500 billion (about 8% of GDP). From January to August 2021, ­expenditures exceeded revenues by about CZK 300 billion, which compares to CZK 230 billion over the same period in 2020. The Ministry of Finance expects the deficit to rise to about CZK 400 billion by the end of the year (about 6.5% of GDP), well below the authorized level but still the highest shortfall ever.

Thanks to government support schemes, the harm of the economic downturn to the labor market has remained contained and has been reflected in fewer working hours rather than a rise in unemployment. Moreover, on the back of the gradual recovery, demand for labor has started to strengthen. Inflation has increased ­significantly to 4.9% (CPI) in September 2021 (central bank target: 2% ±1 percentage point) despite an appreciating koruna. Strengthening domestic and global ­demand, disruptions in supply chains and production processes and higher wage growth kept core inflation high, while food and energy prices trended notably higher. After mixed signals throughout most of the first half of 2021, the Czech National Bank reacted to rising inflation by raising its key interest rate in two 25-basis point steps in June and August 2021. In light of the sizable deterioration in the inflation outlook for the near term, the central bank sent a strong signal on September 30 by raising the policy rate – for the first time in almost 25 years of
its inflation-targeting history – by 75 basis points to 1.5%. Markets expect a ­continuation of the hiking cycle this year.

Table 6: Main economic indicators: Czechia  

	2018	2019	2020	Q1 20	Q2 20	Q3 20	Q4 20	Q1 21	Q2 21
	Year-on-year change of period total in %
GDP at constant prices	3.2	3.0	–5.8	–1.0	–10.8	–5.7	–5.4	–2.7	8.8
Private consumption	3.5	2.7	–6.8	–2.1	–9.9	–5.1	–9.8	–6.4	7.7
Public consumption	3.8	2.5	3.4	3.9	1.8	0.5	7.2	0.9	3.1
Gross fixed capital formation	10.0	5.9	–7.2	–3.2	–4.4	–8.8	–11.1	–3.4	4.9
Exports of goods and services	3.7	1.5	–6.9	–2.5	–23.9	–4.6	3.5	2.5	31.9
Imports of goods and services	5.8	1.5	–6.9	–1.9	–18.8	–6.5	–0.7	3.8	32.7
	Contribution to GDP growth in percentage points
Domestic demand	4.4	3.0	–5.3	–0.3	–5.4	–6.7	–8.5	–2.1	8.0
Net exports of goods and services	–1.2	0.0	–0.5	–0.6	–5.3	1.0	3.0	–0.6	0.8
Exports of goods and services	2.9	1.1	–5.1	–2.0	–17.8	–3.2	2.6	1.9	19.8
Imports of goods and services	–4.1	–1.1	4.7	1.3	12.5	4.2	0.5	–2.5	–19.0
	Year-on-year change of period average in %
Unit labor costs in the whole economy (nominal, per person)	6.1	4.3	7.7	5.0	9.3	6.4	10.0	3.4	1.3
Unit labor costs in manufacturing (nominal, per hour)	4.7	9.1	2.4	2.6	14.8	–1.7	–5.4	–4.8	–14.2
Labor productivity in manufacturing (real, per hour)	3.9	–0.8	2.7	3.1	–7.8	3.8	11.5	7.6	17.8
Labor costs in manufacturing (nominal, per hour)	8.8	8.2	4.7	5.8	5.8	2.0	5.5	2.4	1.1
Producer price index (PPI) in industry	0.7	1.7	0.6	0.1	1.0	0.1	1.1	2.3	3.3
Consumer price index (here: HICP)	2.0	2.6	3.3	3.7	3.3	3.5	2.7	2.2	2.8
EUR per 1 CZK, + = CZK appreciation	2.7	–0.1	–3.0	0.3	–5.1	–2.8	–4.1	–1.7	5.6
	Period average levels
Unemployment rate (ILO definition, %, 15–64 years)	2.3	2.1	2.6	2.0	2.4	2.9	3.1	3.4	3.1
Employment rate (%, 15–64 years)	74.8	75.1	74.4	74.8	74.1	74.4	74.3	73.6	73.7
Key interest rate per annum (%)	1.1	1.9	0.8	2.0	0.6	0.3	0.3	0.3	0.3
CZK per 1 EUR	25.6	25.7	26.5	25.6	27.1	26.5	26.7	26.1	25.6
	Nominal year-on-year change in period-end stock in %
Loans to the domestic nonbank private sector1	6.8	5.0	5.0	5.6	3.6	3.5	3.0	2.6	4.4
of which: loans to households	7.5	6.1	6.1	6.3	6.1	6.3	6.5	6.9	8.1
loans to nonbank corporations	5.8	3.8	3.8	4.8	0.7	0.1	–1.3	–2.7	–0.3
	%
Share of foreign currency loans in total loans to the nonbank private sector	14.1	14.5	14.6	16.9	16.0	16.1	14.6	14.8	13.5
Return on assets (banking sector)	1.1	1.2	0.6	0.7	0.7	0.6	0.6	0.5	0.7
Tier 1 capital ratio (banking sector)	19.1	20.8	23.6	20.9	22.5	22.6	23.6	23.4	23.9
NPL ratio (banking sector)	3.1	2.4	2.6	2.3	2.4	2.2	2.6	2.6	2.6
	% of GDP
General government revenues	41.5	41.7	41.3	..	..	..	..	..	..
General government expenditures	40.6	41.4	47.5	..	..	..	..	..	..
General government balance	0.9	0.3	–6.2	..	..	..	..	..	..
Primary balance	1.6	1.0	–5.4	..	..	..	..	..	..
Gross public debt	32.1	30.3	38.1	..	..	..	..	..	..
	% of GDP
Debt of nonfinancial corporations (nonconsolidated)	59.8	55.1	56.4	..	..	..	..	..	..
Debt of households and NPISHs2 (nonconsolidated)	31.6	31.7	34.1	..	..	..	..	..	..
	% of GDP (based on EUR), period total
Goods balance	3.7	4.1	5.0	4.9	2.2	5.4	7.3	6.8	3.0
Services balance	2.2	1.8	1.8	2.7	2.0	2.1	0.6	1.7	2.1
Primary income	–4.8	–5.0	–2.7	–0.3	–2.8	–1.0	–6.7	–1.8	–3.3
Secondary income	–0.7	–0.6	–0.5	–1.1	–0.2	–0.7	–0.1	–1.6	0.1
Current account balance	0.5	0.3	3.6	6.1	1.2	5.8	1.2	5.1	1.8
Capital account balance	0.2	0.4	1.3	1.4	1.5	1.3	0.8	–0.1	1.6
Foreign direct investment (net)3	–0.9	–2.4	–1.3	0.5	–2.5	1.5	–4.4	2.4	–2.2
	% of GDP (rolling four-quarter GDP, based on EUR), end of period
Gross external debt	81.3	76.5	76.1	72.1	74.2	73.6	76.1	76.1	73.0
Gross official reserves (excluding gold)	58.9	59.0	62.7	58.1	61.1	61.4	62.7	64.7	62.3
	Months of imports of goods and services
Gross official reserves (excluding gold)	9.9	10.4	11.7	10.4	11.2	11.5	11.7	12.0	11.1
	EUR million, period total
GDP at current prices	210,881	225,579	215,282	53,488	49,847	55,150	56,797	53,136	59,668
Source: Bloomberg, European Commission, Eurostat, national statistical offices, national central banks, wiiw, OeNB.
1 Foreign currency component at constant exchange rates.
2 Nonprofit institutions serving households.
3 + = net accumulation of assets larger than net accumulation of liabilities (net outflow of capital).
– = net accumulation of assets smaller than net accumulation of liabilities (net inflow of capital).

7 Hungary: GDP bounces back accompanied by rising inflation

According to the European Commission’s latest forecast, Hungary’s budget deficit should decline to 6.8% of GDP in 2021. This is lower than the government’s deficit target, which was raised from 2.9% to 7.5% of GDP in May 2021. Various government measures will work toward a deterioration of the fiscal balance from 2021 onward, such as the refund of personal income tax paid by families in 2021 (if 2021 GDP growth exceeds 5.5%), personal income tax exemption for employees under the age of 25, stepped-up public investments, (at least) one further weekly installment of the 13th month pension as well as a pension premium and further reductions in employers’ social tax. Notwithstanding heightened uncertainty about the timing and the magnitude of the EU funds available for Hungary, the government has pledged to prefinance projects, using the proceeds from three eurobond issues in mid-September.

HICP inflation has accelerated rapidly since the beginning of 2021 to 5.5% in September 2021 (i.e. well above the central bank’s 3% ±1 percentage point target). The acceleration of inflation has partially been linked to increases in the tobacco tax and the sharp rise in energy prices. Nevertheless, inflation has also accelerated for nonenergy industrial goods and services, which has reflected unbalanced demand-­supply conditions due to the lifting of COVID-19 restrictions, international supply chain disruptions, rapid wage growth and strong consumer demand. Against this background, Magyar Nemzeti Bank resumed a tightening cycle in June 2021. From June through October 2021, it raised the base rate in four steps from 0.6% to 1.8% and signaled further monthly rate hikes for the fourth quarter of 2021. It has also ended or reduced its various quantitative easing programs (e.g. Funding For Growth Go! (F4G), long-term covered loans for banks, forint-providing foreign currency swaps, government bond purchases). At the beginning of August, it launched a new green mortgage bond purchase program and resumed rolling over maturing nongreen mortgage bonds, while it raised the volume of its corporate bond purchase program. In order to additionally support demand for green assets, it has granted green securities preferential treatment as eligible collateral since September 2021. In early October 2021 it also started a new green home program subject to the same preferential conditions as used in the F4G programs. The ­government extended the existing loan repayment moratorium until mid-2022 for selected debtor groups (e.g. pensioners, people raising children and people with decreased income and companies with revenue loss of at least 25%) and ordered banks to retroactively recalculate interest on credit card debt and overdraft credit under the moratorium at more favorable interest rates for the debtors.

Table 7: Main economic indicators: Hungary  

	2018	2019	2020	Q1 20	Q2 20	Q3 20	Q4 20	Q1 21	Q2 21
	Year-on-year change of period total in %
GDP at constant prices	5.4	4.6	–5.0	2.1	–13.3	–4.6	–3.5	–2.1	17.9
Private consumption	5.1	5.1	–2.3	4.7	–7.3	–2.6	–3.6	–4.7	10.4
Public consumption	1.7	4.0	–1.0	0.6	–2.5	–0.7	–1.3	6.2	2.8
Gross fixed capital formation	16.4	12.8	–7.3	–4.1	–10.9	–13.7	1.3	–0.1	8.3
Exports of goods and services	5.0	5.8	–6.8	0.4	–23.6	–4.8	1.1	3.3	33.0
Imports of goods and services	7.0	8.2	–4.4	2.7	–15.2	–4.7	–0.4	1.1	23.4
	Contribution to GDP growth in percentage points
Domestic demand	6.6	6.3	–2.9	4.0	–5.6	–4.4	–4.7	–4.1	11.5
Net exports of goods and services	–1.2	–1.7	–2.1	–1.9	–7.7	–0.2	1.2	2.0	6.5
Exports of goods and services	4.3	4.9	–5.6	0.3	–19.7	–3.9	0.8	2.9	24.0
Imports of goods and services	–5.5	–6.5	3.5	–2.2	12.0	3.7	0.3	–0.9	–17.5
	Year-on-year change of period average in %
Unit labor costs in the whole economy (nominal, per person)	3.4	3.0	8.1	4.6	14.7	6.5	6.5	8.5	–3.1
Unit labor costs in manufacturing (nominal, per hour)	7.4	6.4	8.4	6.3	25.5	1.9	0.4	–0.7	–15.9
Labor productivity in manufacturing (real, per hour)	1.5	4.3	–0.1	2.3	–11.9	2.5	6.3	4.6	20.7
Labor costs in manufacturing (nominal, per hour)	9.0	10.9	7.6	8.7	10.5	4.5	6.7	3.8	1.5
Producer price index (PPI) in industry	5.6	2.2	4.3	4.1	2.8	4.0	6.1	8.0	10.9
Consumer price index (here: HICP)	2.9	3.4	3.4	4.4	2.5	3.8	2.9	3.3	5.3
EUR per 1 HUF, + = HUF appreciation	–3.0	–2.0	–7.4	–6.3	–8.2	–7.2	–7.9	–6.1	–0.8
	Period average levels
Unemployment rate (ILO definition, %, 15–64 years)	3.8	3.5	4.3	3.8	4.7	4.5	4.2	4.5	4.1
Employment rate (%, 15–64 years)	69.3	70.1	69.7	69.7	68.7	70.2	70.2	71.8	72.8
Key interest rate per annum (%)	0.9	0.9	0.8	0.9	0.9	0.6	0.6	0.6	0.6
HUF per 1 EUR	318.8	325.2	351.2	339.1	351.7	353.6	360.5	361.0	354.7
	Nominal year-on-year change in period-end stock in %
Loans to the domestic nonbank private sector1	9.9	12.5	12.5	15.3	11.1	10.3	11.0	8.7	10.5
of which: loans to households	5.8	15.5	15.5	18.0	18.5	14.9	14.1	13.4	15.5
loans to nonbank corporations	13.1	10.4	10.4	13.5	6.2	7.1	8.8	5.4	6.8
	%
Share of foreign currency loans in total loans to the nonbank private sector	24.0	23.8	22.3	25.6	24.4	23.4	22.3	21.9	20.0
Return on assets (banking sector)	1.4	1.2	0.4	0.2	0.3	0.5	0.4	1.1	1.3
Tier 1 capital ratio (banking sector)	17.8	16.4	17.4	15.6	15.7	15.8	17.4	17.3	17.2
NPL ratio (banking sector)	2.2	2.6	2.4	2.5	2.9	2.8	2.4	2.3	2.2
	% of GDP
General government revenues	43.8	43.6	43.5	..	..	..	..	..	..
General government expenditures	45.9	45.7	51.6	..	..	..	..	..	..
General government balance	–2.1	–2.1	–8.1	..	..	..	..	..	..
Primary balance	0.2	0.1	–5.7	..	..	..	..	..	..
Gross public debt	69.1	65.5	80.4	..	..	..	..	..	..
	% of GDP
Debt of nonfinancial corporations (nonconsolidated)	63.9	62.5	66.1	..	..	..	..	..	..
Debt of households and NPISHs2 (nonconsolidated)	17.6	18.1	20.2	..	..	..	..	..	..
	% of GDP (based on EUR), period total
Goods balance	–1.7	–2.5	–1.0	–1.2	–2.7	–0.4	–0.1	3.7	–1.4
Services balance	5.9	4.9	2.8	4.1	1.2	4.1	1.7	2.0	3.6
Primary income	–3.7	–2.5	–2.6	–2.6	–2.7	–2.8	–2.5	–3.9	–3.2
Secondary income	–0.4	–0.5	–0.7	–1.3	–0.9	–0.3	–0.4	–1.2	–1.1
Current account balance	0.2	–0.7	–1.6	–1.0	–5.1	0.7	–1.4	0.6	–2.1
Capital account balance	2.3	1.9	2.0	1.7	2.1	2.1	2.1	1.6	1.2
Foreign direct investment (net)3	–1.9	–0.5	–1.6	–3.1	–2.7	–1.6	0.6	0.2	0.2
	% of GDP (rolling four-quarter GDP, based on EUR), end of period
Gross external debt	79.3	72.5	80.5	70.9	77.3	80.2	80.5	86.0	84.0
Gross official reserves (excluding gold)	19.3	18.5	23.6	16.6	20.4	22.2	23.6	20.4	18.5
	Months of imports of goods and services
Gross official reserves (excluding gold)	2.9	2.8	3.6	2.5	3.1	3.4	3.6	3.1	2.8
	EUR million, period total
GDP at current prices	135,815	145,963	135,796	32,567	30,831	34,681	37,718	32,048	37,780
Source: Bloomberg, European Commission, Eurostat, national statistical offices, national central banks, wiiw, OeNB.
1 Foreign currency component at constant exchange rates.
2 Nonprofit institutions serving households.
3 + = net accumulation of assets larger than net accumulation of liabilities (net outflow of capital).
– = net accumulation of assets smaller than net accumulation of liabilities (net inflow of capital).

8 Poland: modest rate hike to keep inflation from becoming entrenched above target

In manufacturing, nominal ULC declined more in Poland than in the euro area in both quarters, while the złoty’s value in euro has remained stable. According to the HICP (and national CPI) definition, annual headline inflation rose from 3.6% (2.4%) in February to 5.6% (5.9%) in September 2021. In parallel, core inflation stood at 4.2% (3.7%) in February and came in at 4.3% (4.2%) in September 2021. Services continue to be the main inflation-driving category within core inflation. The Monetary Policy Council (MPC), pursuing a CPI inflation target of 2.5% ±1 percentage point, maintained an asymmetric band with its main policy rate (seven-day open-market rate) at 0.1%, the deposit rate at 0.0% and the lombard rate at 0.5%. On October 6, it raised the main policy rate to 0.5% and the lombard rate to 1.0%, re-establishing a symmetric band. It argued that, even though the impact of some supply-side factors that are currently increasing inflation would fade next year, ­inflation may remain elevated longer than expected, amid further economic recovery and favorable labor market conditions, and this would generate a risk of inflation staying above the inflation target in the medium term. In parallel, the MPC continued its open-ended outright purchases of government(-guaranteed) debt securities in the secondary market with flexible scale. The accepted bids implied a rise in the average three-year government bond yields by 0.5 percentage points to 0.9% and in the ­ten-­year segment by 1.1 percentage points to 2.6% from March to September 2021.

Regarding fiscal policy, the European Commission, in May, forecast a decline in the general government deficit to 4.3% of GDP in 2021 and a decrease in general government debt to 57% of GDP. Apart from growth effects and the easing of the pandemic, revenues are set to rise by 0.4% of GDP due to a new sugar tax, retail tax and power fee, while expenditures are scheduled to rise due to a one-off 14th pension benefit.

Table 8: Main economic indicators: Poland  

	2018	2019	2020	Q1 20	Q2 20	Q3 20	Q4 20	Q1 21	Q2 21
	Year-on-year change of period total in %
GDP at constant prices	5.4	4.7	–2.5	2.1	–7.8	–1.7	–2.6	–1.2	10.8
Private consumption	4.5	3.9	–2.9	1.0	–10.4	0.3	–3.0	–0.2	13.2
Public consumption	3.5	6.5	4.9	3.2	3.9	3.6	8.2	1.1	2.7
Gross fixed capital formation	9.4	6.1	–9.0	2.3	–8.9	–7.0	–15.3	1.3	5.2
Exports of goods and services	6.9	5.2	0.1	3.2	–13.4	2.2	8.2	6.8	29.0
Imports of goods and services	7.4	3.0	–1.2	1.6	–15.8	0.7	8.5	10.8	34.4
	Contribution to GDP growth in percentage points
Domestic demand	5.3	3.5	–3.2	1.1	–8.4	–2.6	–2.8	0.3	11.3
Net exports of goods and services	0.0	1.3	0.7	1.0	0.5	0.8	0.3	–1.6	–0.3
Exports of goods and services	3.8	2.9	0.1	1.9	–7.6	1.2	4.2	4.0	15.3
Imports of goods and services	–3.8	–1.6	0.6	–0.9	8.1	–0.4	–3.9	–5.5	–15.6
	Year-on-year change of period average in %
Unit labor costs in the whole economy (nominal, per person)	3.1	2.4	6.3	3.9	10.1	4.3	7.1	7.4	–0.9
Unit labor costs in manufacturing (nominal, per hour)	4.7	4.2	4.9	6.1	15.5	–1.0	–0.8	–3.8	–13.1
Labor productivity in manufacturing (real, per hour)	3.1	2.4	1.6	2.1	–7.8	4.8	7.2	9.9	23.3
Labor costs in manufacturing (nominal, per hour)	8.0	6.7	6.2	8.4	6.5	3.7	6.4	5.7	7.1
Producer price index (PPI) in industry	2.1	1.3	–0.5	0.3	–1.2	–1.0	–0.1	2.5	6.6
Consumer price index (here: HICP)	1.2	2.1	3.7	3.9	3.4	3.7	3.6	3.9	4.6
EUR per 1 PLN, + = PLN appreciation	–0.1	–0.9	–3.3	–0.5	–4.9	–2.7	–4.9	–4.9	–0.6
	Period average levels
Unemployment rate (ILO definition, %, 15–64 years)	3.9	3.4	3.2	3.2	3.2	3.3	3.2	4.1	3.6
Employment rate (%, 15–64 years)	67.4	68.2	68.7	68.4	67.9	69.0	69.4	69.2	70.0
Key interest rate per annum (%)	1.5	1.5	0.5	1.4	0.4	0.1	0.1	0.1	0.1
PLN per 1 EUR	4.3	4.3	4.4	4.3	4.5	4.4	4.5	4.5	4.5
	Nominal year-on-year change in period-end stock in %
Loans to the domestic nonbank private sector1	6.4	5.0	5.0	4.7	1.5	–0.8	–1.2	–2.2	0.3
of which: loans to households	5.6	5.6	5.6	5.1	2.9	2.1	1.6	1.3	3.0
loans to nonbank corporations	7.6	4.1	4.1	4.1	–0.9	–5.6	–6.0	–8.0	–4.4
	%
Share of foreign currency loans in total loans to the nonbank private sector	20.8	19.2	19.6	20.2	19.8	19.6	19.6	19.3	18.1
Return on assets (banking sector)	0.7	0.7	0.0	0.3	0.3	0.4	0.0	0.4	0.5
Tier 1 capital ratio (banking sector)	17.1	17.0	18.9	16.3	18.0	18.4	18.9	18.9	18.3
NPL ratio (banking sector)	6.8	6.6	7.0	6.7	6.9	7.0	7.0	6.7	6.5
	% of GDP
General government revenues	41.3	41.1	41.7	..	..	..	..	..	..
General government expenditures	41.5	41.8	48.7	..	..	..	..	..	..
General government balance	–0.2	–0.7	–7.0	..	..	..	..	..	..
Primary balance	1.2	0.7	–5.7	..	..	..	..	..	..
Gross public debt	48.8	45.6	57.5	..	..	..	..	..	..
	% of GDP
Debt of nonfinancial corporations (nonconsolidated)	46.0	45.2	45.6	..	..	..	..	..	..
Debt of households and NPISHs2 (nonconsolidated)	34.7	34.7	33.9	..	..	..	..	..	..
	% of GDP (based on EUR), period total
Goods balance	–1.2	0.3	2.4	0.8	3.0	2.4	3.3	2.1	1.6
Services balance	4.3	4.5	4.4	4.9	4.3	4.3	4.0	4.5	4.6
Primary income	–4.0	–4.0	–3.5	–2.0	–3.3	–4.6	–4.1	–3.5	–5.4
Secondary income	–0.3	–0.3	–0.3	–0.6	0.4	–0.2	–0.7	–1.0	–0.5
Current account balance	–1.3	0.5	2.9	3.1	4.4	1.9	2.5	2.1	0.3
Capital account balance	2.1	2.0	2.3	1.5	2.9	1.4	3.3	0.6	2.2
Foreign direct investment (net)3	–2.6	–1.9	–2.1	–4.7	–1.6	–1.7	–0.6	–5.1	–1.5
	% of GDP (rolling four-quarter GDP, based on EUR), end of period
Gross external debt	63.6	59.0	57.9	56.3	56.9	57.1	57.9	58.8	56.9
Gross official reserves (excluding gold)	19.6	19.6	21.8	18.4	19.6	20.3	21.8	23.7	22.7
	Months of imports of goods and services
Gross official reserves (excluding gold)	4.5	4.6	5.3	4.4	4.8	5.0	5.3	5.7	5.2
	EUR million, period total
GDP at current prices	497,645	533,674	523,576	129,430	117,617	131,573	144,956	129,210	136,237
Source: Bloomberg, European Commission, Eurostat, national statistical offices, national central banks, wiiw, OeNB.
1 Foreign currency component at constant exchange rates.
2 Nonprofit institutions serving households.
3 + = net accumulation of assets larger than net accumulation of liabilities (net outflow of capital).
– = net accumulation of assets smaller than net accumulation of liabilities (net inflow of capital).

9 Romania: vivid economic recovery so far, but persistent twin deficits and rising inflation

Rebounding private consumption was an important pillar of the rapid recovery, as pent-up demand was released, economic sentiment brightened, and real wages were on the rise. Yet, while the year-on-year growth rate rose steeply in the ­second quarter of 2021 due to base effects, private consumption in fact contracted in ­quarter-on-quarter terms. Gross fixed capital formation expanded further in the first half of 2021. In parallel, domestic credit growth accelerated, partly benefiting from government guarantee schemes available for households (new home program) and companies. So far, the NPL ratio has ticked up only marginally from the ­post-2008 low reached at end-2020. Alongside recovering external demand, real exports grew further in the first half of 2021 resulting in a formidable year-on-year growth rate in the second quarter. It is worth noting that the export-oriented ­automotive sector was still constrained by semiconductor shortages. As imports rose as well, the GDP contribution of net exports remained negative.

The general government budget plan for 2021 was initially built on a real GDP growth projection of 4.3%. Though this projection was raised to 7% in the context of the budget revision (endorsed in early September 2021), the cash deficit projection was lowered only marginally (from 7.16% of GDP to 7.13% of GDP; around 8% in ESA terms). The increase of expenditures in parallel to higher than expected ­revenues was criticized by Romania’s Fiscal Council. Meanwhile, a dispute over a local investment plan triggered the collapse of the government coalition. Within the framework of the excessive deficit procedure, Romania should put an end to the excessive deficit situation by 2024 at the latest and gradually reduce its deficit until then. The European Council established the deadline of October 15, 2021, for Romania to report its consolidation strategy. It is noteworthy that the European Commission endorsed Romania’s EUR 29.2 billion recovery and resilience plan in late September 2021, but it is still subject to Council approval.

The considerably increasing deficit in the goods and services balance and the rising deficit in the primary income balance (due to reinvested earnings) were the main drivers behind the marked increase in the current account deficit in the first half of 2021. As the surplus in the capital account fell due to lower inflows of EU funds, the deterioration was even more pronounced in the combined current and capital account. Rising net FDI inflows covered 55% of this shortfall.

Consumer price inflation climbed to 6.3% in September 2021, largely driven by a rise in energy prices. Hence, it markedly exceeded the upper bound of the inflation target variation band of 2.5% ± 1 percentage point. Core inflation rose from about 3% in early 2021 to 3.2% in August 2021. In early October, the National Bank of Romania hiked its key policy rate by 25 basis points to 1.5%. Government bond purchases on the secondary market (introduced during the first wave of the pandemic) had already been stopped earlier this year.

Table 9: Main economic indicators: Romania  

	2018	2019	2020	Q1 20	Q2 20	Q3 20	Q4 20	Q1 21	Q2 21
	Year-on-year change of period total in %
GDP at constant prices	4.5	4.1	–3.9	2.4	–10.0	–5.6	–1.4	–0.2	13.0
Private consumption	7.6	4.0	–4.9	3.8	–12.6	–4.3	–6.2	0.9	10.1
Public consumption	4.6	7.3	1.8	4.5	4.3	–2.1	1.9	–4.4	2.5
Gross fixed capital formation	–1.0	12.8	7.2	17.4	2.6	6.0	6.5	11.7	12.0
Exports of goods and services	5.3	4.0	–9.6	–1.7	–28.8	–5.2	–1.8	1.0	41.0
Imports of goods and services	8.7	7.1	–5.8	2.5	–22.6	–3.9	2.3	3.9	40.3
	Contribution to GDP growth in percentage points
Domestic demand	6.1	5.3	–2.2	5.0	–7.9	–5.1	0.2	3.6	12.4
Net exports of goods and services	–1.6	–1.2	–1.6	–2.8	–1.8	–0.8	–1.6	–2.7	–1.9
Exports of goods and services	2.2	1.9	–3.9	–0.4	–11.8	–2.7	–1.2	0.3	12.9
Imports of goods and services	–3.8	–3.1	2.3	–2.4	10.0	1.9	–0.4	–2.9	–14.7
	Year-on-year change of period average in %
Unit labor costs in the whole economy (nominal, per person)	8.5	6.3	9.4	6.6	11.7	12.4	7.4	–6.1	–12.4
Unit labor costs in manufacturing (nominal, per hour)	7.0	13.2	5.9	11.5	8.1	2.9	1.7	0.1	0.7
Labor productivity in manufacturing (real, per hour)	5.5	–0.8	0.4	–1.7	–5.0	1.7	6.8	5.3	11.4
Labor costs in manufacturing (nominal, per hour)	12.8	12.4	6.4	9.6	2.7	4.7	8.6	5.4	12.1
Producer price index (PPI) in industry	5.0	4.0	0.0	2.7	–1.4	–0.8	–0.5	2.3	10.1
Consumer price index (here: HICP)	4.1	3.9	2.3	3.1	2.1	2.4	1.8	2.3	3.1
EUR per 1 RON, + = RON appreciation	–1.8	–1.9	–1.9	–1.3	–1.9	–2.3	–2.1	–1.7	–1.7
	Period average levels
Unemployment rate (ILO definition, %, 15–64 years)	4.3	4.0	5.2	4.4	5.5	5.4	5.4	6.1	5.1
Employment rate (%, 15–64 years)	64.8	65.8	65.6	65.4	65.2	66.0	65.8	60.8	62.4
Key interest rate per annum (%)	2.4	2.5	1.9	2.4	1.9	1.6	1.5	1.3	1.3
RON per 1 EUR	4.7	4.7	4.8	4.8	4.8	4.8	4.9	4.9	4.9
	Nominal year-on-year change in period-end stock in %
Loans to the domestic nonbank private sector1	7.9	5.5	5.5	6.2	3.1	3.2	4.8	6.2	10.6
of which: loans to households	9.1	6.7	6.7	7.1	5.3	4.8	4.2	4.6	7.5
loans to nonbank corporations	6.6	4.2	4.2	5.3	0.6	1.4	5.5	7.9	14.3
	%
Share of foreign currency loans in total loans to the nonbank private sector	34.0	32.4	30.5	32.8	32.2	31.4	30.5	29.9	28.9
Return on assets (banking sector)	1.6	1.4	1.0	1.3	1.1	1.2	1.0	1.3	1.4
Tier 1 capital ratio (banking sector)	18.6	20.1	23.2	18.5	20.7	20.8	23.2	22.7	22.1
NPL ratio (banking sector)	5.0	4.1	3.8	3.9	4.4	4.1	3.8	3.9	3.8
	% of GDP
General government revenues	31.9	31.8	33.1	..	..	..	..	..	..
General government expenditures	34.9	36.2	42.4	..	..	..	..	..	..
General government balance	–2.9	–4.4	–9.2	..	..	..	..	..	..
Primary balance	–1.9	–3.2	–7.9	..	..	..	..	..	..
Gross public debt	34.7	35.3	47.3	..	..	..	..	..	..
	% of GDP
Debt of nonfinancial corporations (nonconsolidated)	32.9	32.3	32.7	..	..	..	..	..	..
Debt of households and NPISHs2 (nonconsolidated)	15.8	15.4	16.0	..	..	..	..	..	..
	% of GDP (based on EUR), period total
Goods balance	–7.5	–8.0	–8.8	–9.9	–9.5	–8.0	–8.2	–11.3	–9.7
Services balance	4.1	3.9	4.3	4.8	4.8	4.2	3.7	4.6	4.0
Primary income	–1.8	–1.4	–1.7	2.1	–2.8	–3.5	–1.9	0.2	–3.4
Secondary income	0.6	0.7	0.9	0.7	0.8	0.8	1.2	0.1	0.6
Current account balance	–4.6	–4.9	–5.2	–2.2	–6.6	–6.5	–5.2	–6.3	–8.4
Capital account balance	1.2	1.3	1.9	2.6	1.7	1.0	2.4	1.1	1.4
Foreign direct investment (net)3	–2.4	–2.2	–0.8	0.9	–3.0	–0.9	–0.5	–4.5	–2.8
	% of GDP (rolling four-quarter GDP, based on EUR), end of period
Gross external debt	48.8	49.2	57.8	48.6	51.8	54.3	57.8	56.6	57.0
Gross official reserves (excluding gold)	16.2	14.7	17.2	15.1	15.9	15.0	17.2	16.3	16.3
	Months of imports of goods and services
Gross official reserves (excluding gold)	4.3	4.0	4.9	4.1	4.5	4.3	4.9	4.6	4.4
	EUR million, period total
GDP at current prices	204,493	222,921	218,009	45,470	46,626	58,719	67,194	46,128	54,589
Source: Bloomberg, European Commission, Eurostat, national statistical offices, national central banks, wiiw, OeNB.
1 Foreign currency component at constant exchange rates.
2 Nonprofit institutions serving households.
3 + = net accumulation of assets larger than net accumulation of liabilities (net outflow of capital).
– = net accumulation of assets smaller than net accumulation of liabilities (net inflow of capital).

10 Turkey: strong growth amid weaker currency, rising inflation and lower external deficit

Following the hike of the key policy rate by 200 basis points to 19% at mid-March 2021 and the ensuing dismissal of the central bank’s governor by the Turkish president, the lira depreciated by 17% in euro terms until June 2021, more than reversing the previous appreciation since October 2020. This depreciation was not accompanied by rising gold imports, possibly due to fungibility considerations ­following rumors of potential gold deposit nationalization. In parallel, official ­foreign currency reserves declined until May. From June, the lira stabilized and reserves recovered in view of rising European vaccination rates and an improved tourism outlook as well as further swap agreements (e.g. with the People’s Bank of China). At end-August 2021, reserves stood at the highest level since February 2020, covering three months of imports. Inflation was roughly stable in spring 2021, after previous monetary tightening and lira appreciation, then rose again in June and July 2021, reflecting the renewed depreciation, and reached 17.1% (core) and 19.2% (headline) in August 2021. After the supervisory authority had extended forbearance rules until end-September, it tightened rules on consumer loans in July. The Turkish central bank tightened reserve requirement ratios in July and mid-­September, but on September 23 it lowered the key rate to 18%, pointing to the stabilization of core inflation, supply constraints, hikes in administered prices and signs of loan contraction.

According to a forecast published in early May, the European Commission expects the budget deficit to contract to 4% of GDP in 2021. The ban on layoffs and the partial short-time labor payments phased out by end-March were re-introduced until end-June in the wake of a further three-week lockdown from end-April. Together with one-off payments to agriculture and several sectors hit by that lockdown, these expenditures may prevent the deficit from shrinking in 2021.

Table 10: Main economic indicators: Turkey  

	2018	2019	2020	Q1 20	Q2 20	Q3 20	Q4 20	Q1 21	Q2 21
	Year-on-year change of period total in %
GDP at constant prices	3.0	0.9	1.8	4.4	–10.4	6.3	6.2	7.2	21.7
Private consumption	0.6	1.5	3.2	5.0	–9.2	8.5	7.9	7.0	22.9
Public consumption	6.5	4.1	2.2	2.9	–0.3	2.0	3.7	0.7	4.2
Gross fixed capital formation	–0.2	–12.4	7.2	–0.6	–5.9	22.6	11.7	12.4	20.3
Exports of goods and services	8.8	4.6	–14.8	–1.1	–36.4	–21.4	0.5	3.0	59.9
Imports of goods and services	–6.2	–5.4	7.6	21.6	–8.0	16.4	3.0	–1.8	19.2
	Contribution to GDP growth in percentage points
Domestic demand	1.2	–2.1	4.0	3.3	–6.9	10.4	8.1	7.4	19.7
Net exports of goods and services	3.8	2.5	–5.7	–4.8	–7.9	–9.6	–0.7	1.2	7.0
Exports of goods and services	2.1	1.2	–4.0	–0.3	–9.7	–5.9	0.1	0.8	11.3
Imports of goods and services	1.7	1.3	–1.8	–4.5	1.8	–3.7	–0.8	0.4	–4.3
	Year-on-year change of period average in %
Unit labor costs in the whole economy (nominal, per person)	..	..	..	..	..	..	..	..	..
Unit labor costs in manufacturing (nominal, per hour)	18.0	21.9	10.0	16.0	13.6	3.6	6.9	8.8	12.9
Labor productivity in manufacturing (real, per hour)	1.7	1.7	8.2	3.9	13.6	6.9	8.3	5.1	–6.5
Labor costs in manufacturing (nominal, per hour)	20.4	23.8	18.9	20.5	29.0	10.7	15.8	14.3	5.6
Producer price index (PPI) in industry	27.0	17.6	12.2	8.9	6.1	11.4	22.2	28.2	38.8
Consumer price index (here: HICP)	16.3	15.2	12.3	12.1	11.7	11.8	13.5	15.6	17.1
EUR per 1 TRY, + = TRY appreciation	–27.7	–10.4	–21.0	–9.4	–12.7	–25.5	–31.8	–24.3	–25.2
	Period average levels
Unemployment rate (ILO definition, %, 15–64 years)	11.1	14.0	13.4	13.9	13.1	13.4	13.0	13.8	12.0
Employment rate (%, 15–64 years)	52.0	50.3	47.5	47.6	45.9	48.8	47.7	48.0	49.7
Key interest rate per annum (%)	15.5	20.6	10.2	11.0	8.8	8.4	12.5	17.3	19.0
TRY per 1 EUR	5.7	6.4	8.0	6.7	7.6	8.5	9.4	8.9	10.1
	Nominal year-on-year change in period-end stock in %
Loans to the domestic nonbank private sector1	12.0	11.0	36.3	15.2	29.1	41.3	36.3	31.9	20.7
of which: loans to households	3.2	15.9	40.1	23.4	36.4	48.4	40.1	35.4	24.9
loans to nonbank corporations	15.0	9.5	35.0	12.9	27.0	39.1	35.0	30.8	19.4
	%
Share of foreign currency loans in total loans to the ­nonbank private sector	38.5	35.2	30.9	34.8	31.7	32.0	30.9	32.4	32.8
Return on assets (banking sector)	1.5	1.1	1.0	1.3	1.2	1.2	1.0	1.0	1.0
Tier 1 capital ratio (banking sector)	13.4	13.9	14.1	13.3	14.8	14.5	14.1	13.4	13.2
NPL ratio (banking sector)	4.1	5.7	4.4	5.3	4.7	4.4	4.4	4.1	3.9
	% of GDP
General government revenues	31.9	29.5	30.4	..	..	..	..	..	..
General government expenditures	34.7	34.0	34.9	..	..	..	..	..	..
General government balance	–2.8	–4.5	–4.5	..	..	..	..	..	..
Primary balance	0.1	–1.9	–1.6	..	..	..	..	..	..
Gross public debt	30.4	32.6	39.5	..	..	..	..	..	..
	% of GDP
Debt of nonfinancial corporations (nonconsolidated)	..	..	..	..	..	..	..	..	..
Debt of households and NPISHs1 (nonconsolidated)	..	..	..	..	..	..	..	..	..
	% of GDP (based on EUR), period total
Goods balance	–5.1	–2.2	–5.3	–5.5	–5.7	–5.7	–4.4	–3.7	–3.4
Services balance	3.9	4.7	1.3	2.0	–0.6	1.8	1.8	1.3	2.0
Primary income	–1.5	–1.7	–1.2	–1.4	–1.8	–0.8	–1.0	–1.5	–1.9
Secondary income	0.1	0.1	0.0	–0.2	0.0	0.2	0.1	0.1	0.2
Current account balance	–2.7	0.9	–5.2	–5.0	–8.2	–4.5	–3.6	–3.9	–3.1
Capital account balance	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0
Foreign direct investment (net)2	–1.2	–0.8	–0.6	–1.2	–0.1	–0.6	–0.7	–0.7	–0.6
	% of GDP (rolling four-quarter GDP, based on EUR), end of period
Gross external debt	57.8	54.7	53.9	53.8	52.9	52.8	53.9	54.1	53.0
Gross official reserves (excluding gold)	9.6	10.3	6.5	8.1	6.3	5.0	6.5	6.5	7.5
	Months of imports of goods and services
Gross official reserves (excluding gold)	3.6	4.1	2.4	3.2	2.5	1.9	2.4	2.4	2.7
	EUR million, period total
GDP at current prices	662,417	678,772	625,264	158,869	137,101	167,165	162,128	155,820	156,088
Source: Bloomberg, European Commission, Eurostat, national statistical offices, national central banks, wiiw, OeNB.
1 Nonprofit institutions serving households.
2 + = net accumulation of assets larger than net accumulation of liabilities (net outflow of capital).
– = net accumulation of assets smaller than net accumulation of liabilities (net inflow of capital).

11 Russia: recovery driven by strong domestic demand and favorable oil price development

Russia’s economy also benefited from the oil price upswing, helped by the global economic recovery and the OPEC+ agreement. Thus, the average Urals price rose by 60% to USD 65 per barrel in the first eight months of 2021 against the corresponding period of 2020. According to the Bank of Russia, GDP had already reattained its pre-pandemic level in the second quarter of 2021. The unemployment rate (ILO definition) declined from a peak of 6.5% in September 2020 to a pre-­pandemic level of 4.4% in August 2021. While vaccination has only been proceeding sluggishly in Russia (by October 2021, about 33% of the population had been ­vaccinated at least once), and new infections remain at an elevated level, only few new restrictions have been introduced recently.

CPI inflation continued to climb, from 5.8% in March to 7.4% in September 2021. This inflation level is substantially higher than the monetary authority’s target of 4.0%. Price rises have been pushed by the strong rebound in domestic demand, some structural supply and labor market bottlenecks, increasing global commodity prices, somewhat poor crop harvests and by persistently high inflationary expectations. The Bank of Russia reacted by substantially tightening its monetary stance: the key rate was raised in five consecutive steps (in March, April, June, July and September) from a record low of 4.25% to 6.75%. The monetary authority has not excluded further tightening.

Buoyed by the recovery of the oil price and rising proceeds, the federal budget balance switched back to a surplus (estimated at about 1.5% of pro-rata GDP in the first eight months of 2021). Moreover, the authorities have so far maintained somewhat higher spending than originally set out in their fiscal guidelines (aimed at phasing out the stimulus launched in 2020). As of end-August 2021, the assets of the National Welfare Fund, most of which are included in Russia’s international reserves, came to EUR 161 billion, 60% of which are liquid assets.

The substantial oil price rise also drove back up Russia’s current account surplus in January to June 2021 to 5.4% of pro-rata GDP. Net private capital outflows reached about last year’s level (3.5% of GDP). While Russia’s gross foreign debt in the first six months rose by 3% to EUR 402 billion, its international reserves ­(excluding gold) rose by 4% to a level of EUR 388 billion (29.8% of GDP).

Although the temporary regulatory forbearance linked to the coronavirus crisis expired at end-June 2021, the elevated NPL ratio hardly budged (end-July 2021, broader definition: 16.2%). Lending continued to be driven by loans to households (+20.3% in the second quarter of 2021), particularly by subsidized mortgage lending and by unsecured consumer loans. The Bank of Russia is implementing measures to rein in lending in these two risky subsectors. Given very low real interest rates, deposits have grown more sluggishly, with retail deposits even slightly contracting.

Table 11: Main economic indicators: Russia  

	2018	2019	2020	Q1 20	Q2 20	Q3 20	Q4 20	Q1 21	Q2 21
	Year-on-year change of period total in %
GDP at constant prices	2.8	2.0	–3.0	1.4	–7.8	–3.5	–1.8	–0.7	10.5
Private consumption	4.2	3.1	–8.5	2.2	–21.5	–9.0	–5.7	–2.8	27.8
Public consumption	1.3	2.4	4.0	3.6	4.1	4.2	4.1	0.3	1.0
Gross fixed capital formation	0.6	1.5	–4.3	–0.5	–6.7	–7.9	–2.1	–0.4	12.8
Exports of goods and services	5.6	0.7	–4.3	–2.4	0.1	–8.1	–6.5	–2.4	–2.7
Imports of goods and services	2.7	3.4	–12.0	1.8	–22.6	–19.9	–5.5	–2.1	31.9
	Contribution to GDP growth in percentage points
Domestic demand	2.1	2.9	–4.5	2.6	–13.4	–6.1	–0.9	–0.5	16.3
Net exports of goods and services	0.8	–0.6	1.7	–1.1	5.5	2.9	–0.3	–0.2	–7.3
Exports of goods and services	1.5	0.2	–1.2	–0.7	0.0	–2.1	–1.7	–0.7	–0.8
Imports of goods and services	–0.6	–0.8	2.9	–0.4	5.5	5.0	1.3	0.5	–6.5
	Year-on-year change of period average in %
Unit labor costs in the whole economy (nominal, per person)	..	..	..	..	..	..	..	..	..
Unit labor costs in manufacturing (nominal, per hour)	1.8	3.9	8.3	5.9	11.1	9.3	6.5	6.8	0.8
Labor productivity in manufacturing (real, per hour)	4.8	3.7	–2.0	1.9	–6.2	–3.4	–0.6	0.6	10.9
Labor costs in manufacturing (nominal, per hour)	6.6	7.8	5.9	8.0	4.1	5.6	5.9	7.3	11.9
Producer price index (PPI) in industry	12.1	2.3	–3.7	–2.4	–12.1	–1.9	1.6	10.5	31.1
Consumer price index (here: HICP)	3.0	4.6	3.4	2.5	3.2	3.6	4.5	5.5	6.0
EUR per 1 RUB, + = RUB appreciation	–11.0	2.2	–12.3	1.6	–8.9	–16.8	–22.4	–17.9	–11.0
	Period average levels
Unemployment rate (ILO definition, %, 15–64 years)	4.8	4.6	5.8	4.7	6.0	6.3	6.1	5.6	5.0
Employment rate (%, 15–64 years)	..	..	..	..	..	..	..	..	..
Key interest rate per annum (%)	7.4	7.3	5.0	6.1	5.5	4.3	4.3	4.3	5.0
RUB per 1 EUR	74.1	72.5	82.6	73.7	79.7	86.3	90.9	89.7	89.5
	Nominal year-on-year change in period-end stock in %
Loans to the domestic nonbank private sector1	10.7	10.6	10.6	10.1	8.9	9.9	9.6	9.4	12.7
of which: loans to households	21.8	19.0	19.0	16.8	12.0	12.9	12.9	13.5	20.3
loans to nonbank corporations	6.6	7.1	7.1	7.1	7.5	8.5	8.0	7.5	9.3
	%
Share of foreign currency loans in total loans to the nonbank private sector	14.6	11.8	12.6	13.5	12.4	13.3	12.6	12.3	10.8
Return on assets (banking sector)	1.5	2.2	1.9	2.4	1.6	1.8	1.9	2.4	2.5
Tier 1 capital ratio (banking sector)	8.8	9.2	9.7	10.0	10.5	10.4	9.7	10.8	10.3
NPL ratio (banking sector)	17.8	17.0	17.1	16.9	17.4	17.4	17.1	17.0	16.2
	% of GDP
General government revenues	35.9	36.2	35.7	..	..	..	..	..	..
General government expenditures	33.0	34.2	39.7	..	..	..	..	..	..
General government balance	2.9	1.9	–4.0	..	..	..	..	..	..
Primary balance	..	..	..	..	..	..	..	..	..
Gross public debt	12.1	12.4	17.7	..	..	..	..	..	..
	% of GDP
Debt of nonfinancial corporations (nonconsolidated)	..	..	..	..	..	..	..	..	..
Debt of households and NPISHs2 (nonconsolidated)	..	..	..	..	..	..	..	..	..
	% of GDP (based on EUR), period total
Goods balance	11.8	9.8	6.2	8.9	5.0	4.9	5.9	8.0	9.4
Services balance	–1.8	–2.2	–1.2	–1.8	–0.6	–1.0	–1.3	–0.7	–1.0
Primary income	–2.4	–3.2	–2.3	–0.6	–3.6	–2.6	–2.8	–0.3	–4.0
Secondary income	–0.5	–0.6	–0.4	–0.3	–0.4	–0.4	–0.3	–0.5	–0.1
Current account balance	7.0	3.8	2.3	6.2	0.4	0.9	1.5	6.5	4.4
Capital account balance	–0.1	0.0	0.0	0.0	–0.1	0.0	–0.1	0.1	–0.1
Foreign direct investment (net)3	1.4	–0.6	–0.2	1.2	–0.5	–1.4	–0.2	1.0	0.7
	% of GDP (rolling four-quarter GDP, based on EUR), end of period
Gross external debt	28.4	29.5	30.1	27.9	30.4	29.3	30.1	31.7	30.8
Gross official reserves (excluding gold)	23.8	26.2	28.8	26.7	27.0	27.6	28.8	30.4	29.8
	Months of imports of goods and services
Gross official reserves (excluding gold)	13.7	15.0	16.8	15.2	15.6	16.2	16.8	17.5	16.7
	EUR million, period total
GDP at current prices	1.399,811	1.510,646	1.293,140	335,903	297,025	319,507	340,705	298,386	344,760
Source: Bloomberg, European Commission, Eurostat, national statistical offices, national central banks, wiiw, OeNB.
1 Foreign currency component at constant exchange rates.
2 Nonprofit institutions serving households.
3 + = net accumulation of assets larger than net accumulation of liabilities (net outflow of capital).
– = net accumulation of assets smaller than net accumulation of liabilities (net inflow of capital).

Outlook for selected CESEE countries and Russia

CESEE-6: broad-based recovery subject to still high uncertainty – Russia: from rebound back to moderate growth amid persistently high risks ^{10 , 11}

Table 1: OeNB-BOFIT GDP projections for 2021 to 2023 compared with the IMF forecast  

	Eurostat/ Rosstat	OeNB-BOFIT projections, October 2021			IMF WEO forecast, October 2021
	2020	2021	2022	2023	2021	2022	2023
	Year-on-year growth in %
CESEE-6	–3.8	5.1	4.5	3.8	5.6	4.9	3.7
Bulgaria	–4.3	4.4	3.8	2.8	4.5	4.4	4.0
Croatia	–7.8	7.0	4.1	3.5	6.3	5.8	4.0
Czechia	–5.8	3.3	4.1	3.2	3.8	4.5	4.1
Hungary	–4.8	6.2	4.5	3.2	7.6	5.1	3.8
Poland	–2.5	4.4	4.8	4.1	5.1	5.1	3.5
Romania	–3.7	7.0	4.5	4.1	7.0	4.8	3.8
Russia	–3.0	3.7	2.8	2.4	4.7	2.9	2.0
Source: Eurostat, Rosstat, OeNB/BOFIT, IMF World Economic Outlook (WEO).

Furthermore, we now see the Russian economy recovering from last year’s comparatively mild 3% dip to above 3.5% growth in 2021 and easing to slightly over 2.5% p.a. on average in 2022/2023. We have thus also revised upward our spring economic forecast for Russia, to reflect improved prospects for global ­economic growth and hence exports, coupled with already high oil prices that are expected to rise even further in 2022. ¹² While this short-term outlook is subject to significant uncertainties, we do not see Russia’s long-term growth exceeding 1.5% to 2.0% p.a. as there are no signs of broader systemic adjustments that would improve the functioning of markets and boost economic activity in the forecast period.

1 CESEE-6: balanced growth composition, with contributions shifting from private consumption to fixed investment over the forecast horizon

Fading out policy stimulus

At the same time, fiscal support is being reduced. Yet, in contrast to the scaling-­back of fiscal stimulus in normal times, the removal of crisis-related measures such as wage support and furlough schemes will not weigh on growth dynamics, especially in light of vivid demand. Beyond the removal of crisis-related measures, we do not expect substantial fiscal consolidation. Although pandemic-related support measures are being scaled back, other fiscal support measures in individual countries add toward an overall rather supportive fiscal stance. Cases in point are higher pension benefits in Bulgaria, Czechia, Hungary, Poland (due to a one-off 14th pension payment) and Romania (due to the indexation system in place), family support measures in Bulgaria and Hungary, and personal income tax or social security ­exemptions in Hungary and Poland. In sum, we expect the mildly dampening effect of monetary policy to be compensated by a still moderately positive impetus from fiscal policy.

Some deceleration of economic activity in the second half of 2021

Pre-crisis GDP levels were reached in the second quarter of 2021 in Hungary, Poland and Romania. According to our projections, Bulgaria will catch up in the final quarter of 2021, Croatia in the second quarter of 2022 and Czechia in the third quarter of 2022. Note that these figures do not reflect GDP loss, though, which has to be measured against a counterfactual without the pandemic. According to our current projections, the GDP levels projected by the European Commission in its Winter 2020 Economic Forecast for end-2021 will likely be reached with a delay of around one year in all countries in this sample, with the exception of Bulgaria (where we estimate the delay to be almost two years).

Economic growth will be balanced, resting on both strong domestic and external demand, which will moderately increase the weight of domestic demand in total final demand in the CESEE-6 aggregate over the projection horizon. Within domestic demand, the growth composition will shift from private consumption toward gross fixed capital formation from 2022 onward, as the latter will strongly be backed by EU funds. With solid growth of exports and imports, the net contribution of exports remains negative over the projection horizon, with a few exceptions (see chart 2).

Private consumption remains a major growth pillar

Public consumption will also make a notable growth contribution of more than 1 percentage point in 2021. Apart from pandemic-related spending that is not ­accounted for as transfers, this increase will be driven by public sector wage increases (Bulgaria, Hungary), government job creation measures (Croatia) and election-­related spending (Hungary). As the fiscal stimulus weakens, the growth contribution of public consumption will halve in 2022 and fall further in 2023. Beyond Hungary, where some pre-election spending will continue until spring 2022, no elections have been scheduled in other CESEE-6 countries for 2022, but there is a certain risk of early elections in Romania.

EU funds back investments from 2022 onward

Strong trade dynamics, yielding a negative net contribution to growth

Risks to CESEE-6 projections are skewed downward, uncertainty remains elevated

A second major risk – which again affects individual countries to different ­degrees – are persistent disruptions in global value chains, as have already occurred in the last few months. Over the forecast horizon, the coincidence of intense global demand coupled with protracted input shortages may cause standstills in ­production lines beyond what we see currently. This would further increase backlogs in ­delivery and production. Unwinding these distortions may take more time than anticipated, thus hampering the recovery of exports, which is a major growth pillar in our baseline projections. In our baseline, we expect these imbalances to fade out in 2022, yet in the worst case this risk could prevail over the entire projection horizon.

Political uncertainty is also prevalent in the region, in different forms, and may potentially affect economic activity, thus rendering our projections too optimistic. In Bulgaria and Romania, the difficulties in forming stable governments have been impairing an adequate management of the pandemic, thus compounding pandemic-­related risks. In Poland and Hungary, the ongoing dispute with the EU about the conformity of national regulations with EU law has created uncertainty about the disbursement of EU funds, including NextGenerationEU funds, and thus poses a significant downward risk to our projections in particular for these two countries.

With domestic inflation posing a nonnegligible downward risk, the central banks of the inflation-targeting countries among the CESEE-6 may have to tighten their monetary policies more sharply than anticipated, as a result of which financing conditions would worsen beyond what we assume in our baseline. Alternatively, too little or too late a monetary policy response implies the risk of monetary policy remaining behind the curve and may lead to persistently high inflation, thus ­lowering consumers’ disposable income by more than envisaged if inflation is not fully incorporated in wage increases. At the current juncture, it is hard to assess how long the currently elevated inflation rates will prevail and whether price ­pressures will indeed ease in mid-2022 as anticipated by the central banks.

As always, economic growth in the CESEE-6 depends largely on the economic growth of their trading partners. Therefore, should the world economy, and in particular the euro area economy, grow at a faster or slower pace than that we ­assumed in our baseline scenario, the growth prospects of the CESEE-6 countries would improve or deteriorate accordingly, notwithstanding supply problems related to disruptions in global value chains.

Overall, uncertainty remains elevated and we assess the balance of risks to be strongly on the downside, with some rebalancing of risks toward the end of the projection horizon.

2 Projections for Bulgaria, Croatia, Czechia, Hungary, Poland and Romania

Bulgaria: delayed policymaking and low vaccination rate might hamper long-term growth

We expect that Bulgaria will experience further infection waves over the ­projection horizon. Vaccination rates are substantially below the worldwide average, posing a risk to private consumption over the next few quarters and in particular to domestic winter tourism. Public consumption will continue to be high in 2022, dampening the negative effects of the pandemic and of rising energy prices. Wage support measures will remain in place at least until the end of 2021. Increases in pensions and heating allowances for the poorest are planned for the winter, and further rises in minimum wages are envisaged for 2022. Both private and public consumption growth rates are expected to ease off only in 2023.

Gross fixed capital formation, while threatened by political instability and hence by delays in major public investment projects, is still expected to fuel economic growth in the years ahead. The submission of the country’s recovery and resilience plan to the European Commission was delayed until late October 2021 by political quarrels surrounding parliamentary elections. Moreover, some initial investments have already been postponed due to issues around public procurement procedures. The fact that the composition of the new parliament and government is still uncertain jeopardizes chances to fully absorb the NextGenerationEU funds until 2027.

The numbers of tourists from abroad and the tourism industry’s revenues have remained far below pre-pandemic levels in 2021. Given the simultaneous rise in energy prices in recent months, the contribution of net exports to GDP is negative in 2021 and will become slightly positive from 2022 onward. Imports already reached pre-pandemic levels in early 2021 whereas exports are not expected to catch up before the second half of 2022. Inflationary pressures in the service sector have been low so far, creating favorable conditions for international tourism. However, the low vaccination rate and vaccine hesitancy constitute a serious downside risk. This makes Bulgaria less attractive as a travel destination than its peer countries in the region that have higher vaccination rates.

Croatia: speedy recovery toward pre-crisis GDP level

The upward revision in GDP growth is attributable to all growth components. Private consumption will benefit from pandemic-related support measures (job retention schemes and tax reliefs) as well as continually strong employment and wage growth. Job retention grants remain in place but have been narrowed down to businesses that continue to be affected by the pandemic, such as travel agencies, catering and the event industry. However, the impetus has shifted from job ­preservation to job creation measures. Beyond pandemic-related conditions, ­employment is expected to continue to rise due to efforts to reconstruct earthquake-hit areas and in line with the absorption of EU funds. After the revival of bank lending to households in the first half of 2021, the further acceleration
of household lending will also stimulate consumer spending. Hence, private ­consumption is now expected to rise by more than 7% year on year.

Public consumption will make mildly positive contributions to growth over the forecast horizon as Croatia will endeavor to keep the balance between necessary fiscal stimulus for pandemic recovery and fiscal consolidation toward meeting the convergence criteria for euro adoption.

Regarding gross fixed capital formation, we are projecting continued growth of close to 7% over the forecast horizon, mainly driven by intensified reconstruction works in earthquake-hit areas, the absorption of EU funds and the implementation of investment measures as outlined in Croatia’s recovery and resilience plan. In terms of digital transformation and green transition, national strategic projects such as P3 Mobility (development of driverless passenger vehicles, with Rimac ­Auto­mobili being the main shareholder) will receive notable grants from the EU’s ­Recovery and Resilience Facility as well as increasingly attract foreign investors. Overall, while the growth contribution from private consumption will be receding over the projection horizon, gross fixed capital formation will provide a sustained notable contribution over all three years.

Furthermore, we are projecting net exports to make a positive contribution to growth in 2021, given first-half results for 2021 and the fact that the summer tourist season exceeded expectations. Increasing domestic demand over the forecast horizon will, however, accelerate import growth and thus lead to a small negative growth contribution of the external sector in 2022 and 2023.

Overall, we continue to expect that economic growth in Croatia will be relatively strong at 4.1% and 3.5% year on year in 2022 and 2023. Apart from the envisaged euro adoption as of January 1, 2023, Croatia’s aim of joining the Schengen Area in 2022 could also further stimulate GDP growth in the next few years. Yet, uncertainty with regard to corporate and household solvency poses a downside risk to the economy.

Czechia: gradual economic recovery amid pandemic hangover and accelerating inflation

As a result of the severe COVID-19 situation that lasted until early March 2021 and the fact that restrictions were not significantly loosened before late spring, economic recovery in the first half of 2021 was rather muted. For the medium term ahead, business and consumer confidence indicators imply continued massive disruptions to global supply chains and production processes (particularly the lack of microchips in the country’s crucial automotive industry) and ballooning prices (especially of industrial goods but also of food and services, for both global and domestic reasons). Frictions in raw material and component supplies, particularly the shortage of semiconductors, are expected to last well into 2022. So far, this has translated, inter alia, into reduced production and/or the buildup of large stocks of unfinished products. Accordingly, we expect enforced stockpiling to remain a key driver of growth not only in the remainder of this year but also well into 2022. In the short to medium term, supply chain disturbances and the shortage of inputs will moreover affect exports, which could otherwise benefit more strongly from the recovery in foreign demand. In the second half of the forecast horizon, the frictions should start to ease, triggering a significant destocking and boosting exports.

The marked inflationary pressures are likely to persist for quite some time, certainly until mid-2022. Sharp increases in the prices of imported (particularly industrial) goods and energy will be exacerbated by domestic factors such as renewed signs of an overheating labor market, post-pandemic price adjustments or the ­development of owner-occupied housing costs. To contain inflationary pressures and prevent inflation expectations from becoming unanchored, the Czech central bank is resolutely determined to accelerate its monetary policy tightening. As a result, the growth contribution of private consumption (to some extent) and that of fixed investment will be dampened in the short to medium term before strengthening again, not least on the back of a stronger drawdown of funds under the EU’s Recovery and Resilience Facility. Public consumption will be a significant driver of growth in 2021 due to high health care-related expenditures – particularly on COVID-19 testing and vaccination – as well as extraordinary payments for health, social and security services employees. Yet this effect will be only temporary. Correspondingly, fiscal policy will exercise a significant positive impact on GDP growth in 2021 due to government support for firms and households hit by the pandemic in combination with higher social expenses and tax reliefs. Yet, as most support measures will be gradually wound down, the fiscal impulse will fade away in the second half of 2021 and turn negative in 2022 despite a renewed significant increase in pensions.

While renewed waves of the pandemic are possible, they pose only a limited economic risk, as a potential deterioration of the health situation should remain relatively contained given the progress of the vaccination program and, in particular, the broad-based decoupling of the economy from pandemic developments. Major downside risks to this forecast thus stem mainly from possible (structural) changes to the global and domestic economy if these were to result in lasting supply chain disruptions, more persistent inflation or an unanchoring of inflation expectations.

Hungary: economy bounces back from low base supported by strong dynamics

In 2021, we expect the economic policy impetus to become somewhat less ­supportive of growth than in 2020. In response to rising inflation and higher ­inflation expectations, the central bank embarked on a rate hike cycle in June 2021 and also scaled back its quantitative easing measures. At the same time, it launched various new (mainly “green”) quantitative easing programs. Fiscal policy is ­expected to remain loose, with plans to bring down the budget deficit from an ­estimated 7.5% of GDP in 2021 to no more than 5.9% in 2022, despite strong ­expected GDP growth.

In 2022, private consumption will benefit from various fiscal policy measures, such as the conditional refund of personal income tax paid by families in 2021, a personal income tax exemption for employees under the age of 25 and the increase of the 13th pension payment by at least one further weekly installment. Wage growth will likely accelerate on the back of the proposed hike in minimum wages by nearly 20% (with a compensation for companies), wage hikes in the public sector and in state-owned enterprises and the increasing tightness on the labor market. Households’ net financial assets continued to rise to record highs through the first quarter of 2021, and we expect pent-up demand to materialize over the forecast horizon. Moreover, the government extended the loan repayment moratorium until mid-2022 for selected debtor groups.

The outlook for investment activity has become more mixed than expected in our previous forecast but remains positive, overall, for the forecast horizon. While monetary tightening may negatively affect corporate investment activity, the ­Hungarian central bank’s “green” programs should offer partial compensation. Also, the amount of net financial assets held by nonfinancial corporations is ­comparatively large by historic standards. Although capacity utilization in industry is still below its long-term average, it has gradually increased over the past few quarters, which together with rising labor costs may be an increasing motivation for corporate investments. Higher budgets have been allocated for gross fixed ­capital formation in 2021 and 2022. While there is heightened uncertainty about the timing and magnitude of EU funds available for Hungary, the government has pledged to prefinance projects even if payments by the EU are delayed. Lending to households has remained elevated, which – combined with households’ strong net financial position – bodes well not only for consumption but also for housing ­investments. Moreover, the preferential VAT rate on new house purchases will ­remain in place while some of the various home purchase or reconstruction ­subsidies will be made more generous.

Government consumption expanded strongly during the first half of 2021. Going forward, we expect it to gain momentum prior to the parliamentary elections in spring 2022, especially as recent polls continue to suggest a close run.

In line with the economic recovery in main trading partner countries, export growth is expected to bounce back after it collapsed in 2020. Exports should also benefit from past and ongoing investments in main export industries and the ­relatively weak exchange rate. At the same time, strong expected wage growth may eat into price competitiveness. Partly due to their much smaller contraction in 2020, imports will rebound in 2021, although by somewhat less than exports. In this context, the contribution of net exports will become positive in 2021. ­However, with import growth outpacing export growth in 2022 and 2023, we expect the contribution of net real exports to turn negative again in the second half of the forecast horizon.

Poland: moderate acceleration of growth in 2022

As a result, in both 2021 and 2022, strong foreign and domestic demand growth will lead to strong import growth, after imports contracted due to declining ­domestic demand in 2020 and stagnating exports. In both years, import growth is forecast to exceed export growth. While starting from a sizable external surplus, the growth differential will be sufficiently large to push the contribution of net exports to GDP growth into negative territory (about –1 percentage point of GDP). From the domestic demand side, inventory increases will decisively contribute to higher imports in 2021, while fixed investment will play a far stronger role in 2022.

Private consumption is expected to grow strongly at a rate of close to 5.5%
in 2021, after having grown by 6.2% in the first half of the year although quite ­restrictive health policy measures were in force until end-April. The strong growth measured in 2021 was supported by the favorable base effect between March and May and by the partial extension of crisis-mitigation measures, including wage ­subsidies, exemptions from social security contributions, support to the self-­employed and the childcare allowance. On top of this, one-off 14th pension ­payments will be made in the second half of 2021. In 2022, private consumption growth will remain strong at about 5%. In both years, pent-up demand and ­accumulated additional savings together with expanding employment and rising real wages, including hikes in minimum wages, will constitute major supportive factors. The decline of consumption loans in the first half of 2021 will probably not reflect credit supply constraints for private consumption going forward. However, the temporary rise of inflation in the fourth quarter of 2021 and in early 2022 may dampen private consumption slightly, until wage increases will partly reflect this acceleration of inflation. Public consumption growth will be below 4% and thus weaker than in the previous year.

Fixed investment is expected to expand at about 6% in 2021, after having grown by only 3.4% in the first half of the year when less EU funds were available for public investment from the previous multiannual financial framework (MFF) and new EU funds were not yet available. In 2022, fixed investment growth will accelerate strongly to about 12%, with both public and corporate sector fixed ­investment benefiting from the new MFF funding cycle and the NextGenerationEU recovery package via the national recovery and resilience plan. In both years, growth of exports and private consumption as well as strongly rising capacity ­utilization levels coupled with substantial corporate saving and supportive monetary conditions for loan supply will be conducive to strong corporate investment. Bottlenecks in the supply chain for semiconductors may be a limiting factor. ­Residential housing investment will benefit from employment growth in combination with the higher saving rate and low interest rates.

Romania: outlook for robust GDP growth clouded by pandemic and political instability

After rebounding sharply from its lockdown-related depressed levels, private consumption will likely continue to make a noticeable contribution to GDP growth. Yet, real income growth will be more moderate over the next few years than in the years up to 2019/2020, when minimum wages and pensions rose steeply. Starting from January 2022, the statutory minimum gross wage will be raised by 10.9%. Furthermore, pensions are expected to increase according to the existing indexation system (inflation plus 50% of the increase in average real wages). We assume that the government will stick to the nominal public sector wage freeze for 2022. Positive effects of the economic recovery on the labor ­market will also provide some support for private consumption, but renewed restrictions may dampen labor demand in certain sectors. In particular, consumer loan growth has recovered in the course of 2021 and might underpin consumption growth.

Gross fixed capital formation will be a key growth driver over the forecast horizon. International companies have signaled further interest in investing in ­Romania’s automotive sector. Beyond this, substantial support will come from ­remaining funds that still flow from the 2014–2020 EU multiannual budget, funds allocated to Romania under the multiannual budget 2021–2027 and the Next­GenerationEU program. Yet, substantial uncertainty remains about effective EU fund absorption and full implementation of the national recovery and resilience plan in particular in case of prolonged or recurrent political instability. As regards financing conditions, elevated inflation will probably prompt the central bank to tighten its monetary policy further (after a 25 basis point hike to 1.5% in early ­October). The IMM Invest program that offers state-guaranteed loans to ­corporates is scheduled to run until end-2021.

Exports will also continue to recover in line with our external assumptions. However, global semiconductor shortages will dampen automotive production and related exports for a while. The growth contribution of net exports will remain negative as the projected pickup in domestic demand will entail a considerable rise in imports.

3 Russia: from rebound back to moderate growth amid persistently high risks

While the pandemic will likely restrain growth in Russia in 2022, some growth-supporting factors have also gathered momentum. Most importantly, the price of oil has gone up and is expected to rise even further in 2022, while market expectations of its gradual decline have somewhat moderated and now see the oil price at around USD 71 per barrel in 2023. ¹³

Related to this, the outlook for Russia’s export industry is supported by the more benign forecasts for the global economy. The easing of oil production ceilings in the OPEC+ agreement this summer has improved the outlook for Russian oil exports. The outlook for gas exports has also become more favorable. Russia’s ­revenues from travel (over 2% of export earnings in 2019) should also recover in the later part of the forecast period.

With a growing economy, rising household incomes and employment will lift private consumption to the extent that it should (finally) surpass the 2014 peak in 2023. The rise in pensions should exceed projected inflation by a couple of percent in line with the 2019–2024 pension hikes. Consumption should also receive a boost from the yet-to-materialize unwinding of the unusually high accumulation of household assets in 2020. Travel abroad from Russia contracted sharply last year and should reverse at a good pace in 2022 and 2023.

The recovery in fixed investment will continue, and capital formation should (finally) exceed the 2012–2014 level by 2023. While the rise in fixed investment is not expected to be particularly swift as, e.g., industrial capacity utilization remains quite low, selected projects are expected to receive higher financing from the ­National Welfare Fund (NWF) in the near term. The aim is also to motivate ­corporate investors to participate and thus boost investment growth while avoiding crowding-out effects.

With both export and domestic demand recovering robustly, Russian goods and services imports should also increase rather well. Growth in imports, ­however, will be limited by the Russian ruble’s real exchange rate, which is expected to ­remain fairly stable as Russian inflation should only slightly outpace inflation in the country’s trading partners. The recovery in expenditure on travel will raise ­Russia’s total imports substantially as travel had accounted for 10% of total imports in 2019 (before imports collapsed). Russia’s total imports should eventually re-­attain about 90% of their 2012–2014 peak. The country’s current account surpluses will remain substantial throughout the forecast period.

There are no signs that the Russian government considers abandoning its ­current fiscal rule, which was relaxed in 2019 to allow for extra spending, similar to the policies pursued in the wake of the 2009 and 2015 recessions. Rising fiscal revenues and improved revenue prospects from higher oil prices would permit the government to ease its tight spending plan.

Forecast saddled with several significant uncertainties

At the same time, rising oil price futures and brisk economic activity in Russia in recent weeks produce upside risks. Surprise upswings in private consumption may materialize with the unwinding of last year’s unusually large accumulation of household assets. Investment growth could strengthen by more than anticipated if planned NWF financing brings in corporate investors in a manner that raises ­overall corporate investment. Swelling government budget revenues may create considerable room for higher budget spending. Last but not least, certain branches and parts of the Russian economy (e.g. goods transportation including pipeline transmission, and services offered to households) have still not experienced ­post-COVID-19 recoveries. Sectoral recovery timelines are hard to foresee, and the speed at which international travel returns to normal may vary.

Which borrower in CESEE gets which loan? Evidence from the OeNB Euro Survey

Marc Bittner ²¹

This paper sheds light on the distribution of three types of retail loans as well as their drivers in ten countries of Central, Eastern and Southeastern Europe (CESEE). Based on data from the OeNB Euro Survey, the study aims at analyzing the characteristics of individuals taking out loans for (1) housing, (2) consumption or (3) education, business or professional activities and other purposes. Logistic regression is used to analyze average marginal effects of a variety of independent variables, such as sociodemographic factors, (economic) attitudes and expectations, trust in institutions, and financial literacy. Identifying and understanding characteristics of ­borrowers holding certain types of loans may inform the formulation of microprudential ­policies and thus help promote financial stability. Apart from being married, trusting domestic banks and the EU as well as having an internet connection at home, having earned income is very important for all three types of loans, with the level of personal income impacting on housing loans only. Borrowers’ level of education is a key driver of both housing loans and loans for education, business or professional activities and other purposes, and less so of consumer loans. High inflation expectations have a significant impact on consumer loans as well as on loans for education, business or professional activities and other purposes. Depending on the loan type, the number of significant drivers differs greatly.

JEL classification: D12, D14

Keywords: types of loans, key drivers, CESEE, survey data, average marginal effects

In light of rising demand and supply, consumer lending in many EU countries has recorded a significant increase in recent years. Demand has been driven mainly by GDP growth and decreasing unemployment, whereas supply has been fueled by low interest rates and a search for increased margins by banks (EBA, 2020, p. 21). Central and Eastern European countries accounted for the highest figures for ­consumer lending as a proportion of total lending in the EU. In particular, 20% of Hungarian banks’ total lending was toward consumer credit. In this respect, ­Hungary was followed by Bulgaria (17%), Romania (16%), Slovenia (15%) and ­Poland (12%) (EBA, 2020, p. 10).

Over the past decades, household debt has risen steadily in most economically advanced societies, which is closely linked to changing patterns of consumption and institutional reforms that have made financial credit accessible to growing ­segments of the population. Social scientists largely attribute this development to an ever more pervasive consumer society on the one hand, and stagnant income levels in the middle and lower social classes on the other hand. In many countries, homeownership has been on the rise, with mortgage debt gaining traction (Lewin-­Epstein and Semyonov, 2016). As to the determinants of taking out a loan, the literature has mainly discussed sociodemographic factors to date.

Using data from the OeNB Euro Survey (see the next section for details) for the period from 2009 to 2017, Hake and Poyntner (2019) explored the question whether interpersonal comparisons affect a household’s probability of having a loan. The results support the notion that the relative income position, along with absolute income, has an impact on households’ likelihood of having a loan, but this is valid mainly for households above the median of the income distribution. While the impact was shown for almost all components of household debt, the evidence proved strongest for mortgage and car loans. In CESEE countries with a more equal income distribution, interpersonal comparisons turn out to be a weaker ­predictor of a household’s propensity to have a loan (Hake and Poyntner, 2019, p. 75). Results of a study by Rosan and Zauder (2020) suggest a “hump-shaped” age profile of debt participation: households with middle-aged heads are more likely to hold debt as well as higher amounts of debt. Households at the upper end of the income distribution have better access to mortgages. In addition, households whose head is highly educated are more likely to use and have access to secured debt (Rosan and Zauder, 2020, pp. 29–30). Using data from the 2001 Survey of ­Consumer Finances, Yilmazer and DeVaney (2005) examined how type and amount of household debt change over the life cycle. Their findings show that the likelihood of holding particular types and amounts of debt compared to total assets decreases with age (p. 285). Other household demographics that have significant effects on the likelihood of holding both secured and unsecured debt and on the respective amounts compared to total assets are household income, being self-­employed and being retired. Characteristics such as marital status, race, education, and the number of children living in the household have a negative effect on the likelihood of holding unsecured debt. Overall, people appear to reduce debt as they approach retirement, an adjustment that is consistent with the life cycle ­hypothesis of savings (p. 301). Bover et al. (2016) show that household members’ age and income level are important determinants of debt. The probability of ­borrowing peaks for cohorts aged thirty-five to forty-four years (Bover et al., 2016, p. 120). A study by Altundere (2014), which draws on data from thirteen European countries that were collected in the second wave of the SHARE project, shows that the incidence of mortgage debt is strongly influenced by having attained high-school and college education and being in employment.

Compared to the existing literature, the present study provides insight into a specific region, namely ten CESEE countries that do not use the euro as official currency. In addition, it draws on more diverse variables than just sociodemographic ones to analyze the drivers of different types of retail loans. Including e.g. additional wealth indicators and borrowers’ (economic) attitudes, experiences, opinions and expectations results in a much broader picture of potential deter­minants.

The study is structured as follows: section 1 provides information on the OeNB Euro Survey as the empirical data basis for this analysis. Section 2 highlights the distribution of different types of retail loans in ten CESEE countries; loan types are classified by three purposes: (1) housing, (2) consumption and (3) education, business or professional activities and other purposes. Section 3 analyzes the drivers of these loan types. Specifically, we analyze borrowers’ largest, most important loans, ­using a logistic regression and presenting the average marginal effects in percentage points. The results indicate borrowers’ probability of having a particular type of loan based on individual characteristics. Section 4 presents the commonalities and differences regarding the three loan types. Section 5 summarizes and concludes.

1 Empirical data basis: the OeNB Euro Survey

The annual questionnaire of the OeNB Euro Survey contains a standard set of questions plus focus modules or questions that change every year. The standard questions relate in particular to cash holdings in foreign currencies, savings ­deposits, portfolio composition, loans taken out and planned as well as an assessment of the economic situation, (economic) expectations and trust in institutions and currencies. The questionnaire is complemented by a wide range of sociodemographic and socioeconomic variables as well as paradata, i.e. interview duration and technique, willingness to cooperate, information on the interviewers and ­location size (Bittner, 2020).

This study is based on OeNB Euro Survey data collected during the survey waves 2017 to 2019, which include a number of comparable questions related to borrowers’ largest, most important loans. Combined with sociodemographic ­variables and variables on (economic) attitudes and behavior, these micro-level data allow for an in-depth analysis of the drivers behind borrowers’ largest, most ­important loans in CESEE.

2 Descriptive analysis

Table 1 shows that the gender and income distributions are very similar across all countries. With regard to the age distribution, note that in Albania, Bulgaria, Poland and Serbia in particular, the share of the young age group (up to 34 years) is above average and that of the age group 60 years and older is below average. As to the level of education, a higher proportion of low-skilled respondents can be found in Bosnia and Herzegovina, North Macedonia, Poland and Serbia, while an above-average number of respondents in Albania, Bulgaria and Hungary report a high level of education. In turn, Croatia, Romania and Czechia are the countries with particularly high proportions in the medium education category.

Table 1: Selected sociodemographic distributions by country  

	Gender		Age			Education			Income
	Male	Female	Up to 34 years	35–59 years	From 60 years	Low	Medium	High	Low	Middle	High
	%
Albania	49.5	50.5	34.3	49.6	16.1	9.1	56.5	34.4	35.2	33.7	31.1
Bosnia and Herzegovina	48.6	51.4	29.0	45.7	25.3	30.9	57.6	11.5	35.1	33.1	31.8
North Macedonia	49.7	50.3	34.5	44.6	20.9	24.7	56.6	18.7	34.5	35.0	30.5
Bulgaria	48.0	52.0	22.4	44.0	33.6	11.6	65.1	23.3	34.5	35.1	30.4
Croatia	47.7	52.3	26.4	43.8	29.8	8.9	73.5	17.6	35.0	33.0	32.0
Poland	47.4	52.6	30.3	45.6	24.1	22.4	61.7	15.9	34.2	33.5	32.3
Romania	48.2	51.8	26.1	44.4	29.5	2.4	78.2	19.4	34.9	34.0	31.1
Serbia	48.1	51.9	29.0	44.8	26.2	30.6	52.4	17.0	34.8	32.4	32.8
Czechia	49.2	50.8	25.0	46.4	28.6	6.7	80.1	13.2	33.6	34.4	32.0
Hungary	46.9	53.1	23.3	44.1	32.6	13.3	65.4	21.3	33.9	35.0	31.1
Source: OeNB Euro Survey 2017–2019.
Note: Respondents answering “don’t know” or “no answer” have been excluded.

Second, we explain the procedure for selecting and operationalizing the ­dependent research variable (“purpose of largest, most important loan”). The ­survey question “Do you, either personally or together with your partner, currently have any loans that you are still paying off?” was used to identify the share of respondents with loans. The shares for each of the ten countries and three survey waves (2017–2019) form the basis for all further calculations. ²³

Chart 1 shows the country-specific shares as well as overall shares of respondents who have a loan for each year under observation. The overall share rose slightly from 22% in 2017 to 25% in 2019. When we look at the individual CESEE countries, different patterns become evident. Countries registering the highest percentages in 2019 are Albania, Bosnia and Herzegovina, Poland, Serbia and ­Hungary. Only one country (Romania) saw a decrease in the observation period. In North Macedonia, Bulgaria, Croatia and Czechia, there were hardly any changes over time.

Macrodata from the wiiw (EIB, 2019, p. 119) show that, from 2017 to 2019, the growth rates of loans to the private sector remained clearly positive throughout the region, except for negative growth rates in Albania in the fourth quarter of 2018 and in Croatia in the fourth quarter of 2017. At the end of 2019, the highest growth rates were posted by Hungary (+13.1%; given a continuously strong ­increase since 2017), Serbia (+8.9%) and Bulgaria (+7.4%), while the lowest value was recorded by Croatia at +3.9%, albeit with an increasing trend over time. In Albania, the negative trend of 2018 turned clearly positive again (+6.6%). According to the CESEE Bank Lending Survey (EIB, 2019, p. 10), demand for loans and credit lines continued to go up in the region, which marked the fourteenth consecutive increase.

An additional set of questions is introduced in the OeNB Euro Survey by the statement “I would now like to ask you some questions about your largest, most important loan.” Here, the following question is key: “What is the purpose of this loan? I/we took out the loan to finance…”. Respondents may choose one item ²⁴ from these options: (1) my/our current main residence, (2) another house or ­apartment, (3) consumption goods (furniture, traveling, household appliances, etc.), (4) a car, (5) education, (6) a business or professional activity, or (7) other.

We used this question to calculate the shares of borrowers taking out their largest, most important loan for different purposes. We defined three purposes: (1) “housing”, which consists of the items “my/our current main residence” and “another house or apartment”; (2) “consumption,” which comprises the items ­“consumption goods (furniture, traveling, household appliances, etc.)” and “a car”; and (3) “education, a business or professional activity or other” (in the following “other” purposes or loans). This way, we ended up with approximately three equal groups for statistical analysis. As an investment in personal development, loans for education and business or professional activities serve similar goals, which is why the aggregation seems legitimate.

Analyses of the 2017–2019 OeNB Euro Survey data show that 8.7% of the ­respondents in the CESEE region have a housing loan as their largest, most important loan, 9.5% a consumer loan and 5.1% a loan for other purposes (chart 2). The shares of respondents whose largest, most important loan is a housing loan rose only marginally. Consumer loans saw a stronger increase between 2018 and 2019. Other loans registered only little change, with a small peak in 2018.

Chart 3 shows the relative distribution of the largest, most important loans by purpose. In Bulgaria, Romania and Serbia, 50% of the largest, most important loans are consumer loans. This type of loan also plays a dominant role in Bosnia and Herzegovina (44%) as well as in North Macedonia (38%). In Croatia and Czechia, by contrast, housing loans account for the highest shares in relative terms (47% and 46%). In both Poland and Hungary, housing and consumer loans amount to similar shares of around 40%. Only in Albania are the shares for all three loan purposes about equal. Across all ten countries, the share of consumer loans totals 41%, followed by housing loans (37%) and other loans (22%).

The survey data for each individual wave (2017, 2018, 2019) show that the overall shares for the three loan types hardly vary (slight decreases over time for housing and other loans, slight increases for consumer loans). At the country level, we see, for example, that the relative importance of housing loans was declining in both Bosnia and Herzegovina and Croatia, while the loan portfolio showed a shift toward consumer loans in Bulgaria, Croatia and Romania at the end of the observation period. With regard to other loans, the shares declined over time, especially in Bulgaria, Poland and Serbia.

3 Multivariate analysis: results of a logistic regression

The independent variables we use are not limited to sociodemographic characteristics, but cover also attitudes, opinions, experiences and expectations. Variable availability and comparability across all three OeNB Euro Survey waves between 2017 and 2019 were an important prerequisite. We accounted for potential overlaps of individual variables (high internal correlation), using statistical measures of association. We checked collinearity for the non-sociodemographic variables, ­integrating the most valuable ones into the regression model. We tested different versions of the model to guarantee that we use the model with the highest explanatory value.

To gain a broader data basis for the logistic regression, we pooled the data ­available for the three survey waves of 2017, 2018 and 2019. Plus, to maximize the number of observations (as a prerequisite for results of highest statistical validity), we put the focus of the multivariate analysis on the CESEE region as a whole, i.e. the ten CESEE countries in which the OeNB Euro Survey is conducted, and not on the country level. ²⁵

Table 2: Results of the logistic regression: all ten CESEE countries, pooled data 2017–2019  

	Housing loan	Consumer loan	Loan for other purposes
Quality of the model
n total	29,638	29,638	29,638
n loan	2,578	2,840	1,527
Nagelkerke R	0.133	0.067	0.036
% explained cases	91.3	90.4	94.8
P-values of the independent variables
Wealth indicators
Income	0.000	0.229	0.091
I am able to save money	0.036	0.000	0.000
I currently have savings	0.000	0.703	0.014
I own a house	0.000	0.000	0.101
I own a car	0.002	0.000	0.537
I have internet at home	0.000	0.000	0.000
Condition of dwelling	0.933	0.000	0.000
Sociodemographic variables
Gender	0.294	0.904	0.500
Age	0.000	0.849	0.134
Marital status	0.000	0.000	0.000
Size of household	0.122	0.023	0.071
Education	0.000	0.625	0.000
Financial literacy	0.010	0.061	0.354
Employment	0.000	0.000	0.038
Attitudes
I prefer cash to a savings account	0.000	0.635	0.000
Readiness to take risks in financial investments	0.059	0.583	0.478
Migration intention	0.003	0.610	0.039
Trust in government	0.000	0.553	0.778
Trust in police	0.002	0.223	0.008
Trust in domestic banks	0.009	0.000	0.009
Trust in foreign banks	0.164	0.149	0.197
Trust in EU	0.000	0.004	0.010
Expectations, opinions, experiences
Financial situation of household will improve	0.252	0.069	0.003
Economy of country will improve	0.975	0.156	0.163
Prices will strongly increase	0.386	0.001	0.000
Euro will be stable and trustworthy	0.196	0.589	0.966
Local currency will be stable and trustworthy	0.636	0.306	0.047
Depositing money at banks is safe	0.003	0.124	0.031
It is common to hold euro cash	0.002	0.083	0.000
I remember periods of high inflation	0.715	0.158	0.000
I remember restrictions of access to my savings deposits	0.011	0.090	0.047
Source: Author’s calculations based on OeNB Euro Survey data.
Note: Figures in italics denote significance at the 0.05 level.

Based on the results of the logistic regression analysis, the core indicators for this study are the average marginal effects, given in percentage points, which – on the basis of predicted values and their differences ²⁶ – indicate by how many percentage points the probability of having a loan of one of the three types differs in the ­presence of a certain characteristic (e.g. “woman”) compared to a reference group (characterized by the absence of this characteristic, e.g. “man”). A positive (negative) proportion means that the examined characteristic has a positive (negative) effect on taking out a loan. ²⁷

The following subsections present the average marginal effects (in percentage points) for the whole sample of the ten countries over the period 2017–2019 (charts 4 to 6). This allows us to draw conclusions about the size of the effects that the independent variables have on borrowers’ likelihood to have one of the three loan types as their largest, most important loan. The charts show the average marginal effects of all the variables with a significant influence (at the 0.05 level).

3.1 Housing loans

Compared with the other two loan types, housing loans have by far the largest number of (significant) influencing variables. Chart 4 shows that the following characteristics have a significantly high positive effect on the chances of having a housing loan as the largest, most important loan (p<=0.05): a high income ­increases a person’s chances of having a housing loan by +10.8 percentage points compared with people with a low income. The results for education-related loans are similar: having attained a high level of education increases a person’s probability of having a loan of this type by +10.4 percentage points. ³⁰ Moreover, being married likewise increases a person’s chance of having a housing loan, with the probability being +7.8 percentage points higher. Digitalization and personal owner­ship also seem to be of great importance: if someone has internet access at home, owns real estate or a car, the chances of having a housing loan increase by +7.3, +7.1 and +6.2 percentage points, respectively. Other variables significantly increasing the probability of having a housing loan are savings (+4.5 percentage points) ³¹ , trust in domestic banks and high financial literacy (+3.0 percentage points each), higher age (35–59 years: +2.3 percentage points), trust in police (+1.6 percentage points) and trust in the EU (+0.7 percentage points).

On the negative side, not being employed significantly reduces a person’s chances of having a housing loan. This is true for retired persons (–8.0 percentage points), students (–7.4 percentage points), unemployed persons (–6.0 percentage points), and even for self-employed persons (–4.0 percentage points). Other factors that decrease the probability of having a housing loan are greater age (60 years and older: –4.0 percentage points), a preference for using cash over having a savings account (–3.3 percentage points), a migration intention (–3.2 percentage points) or restricted access to savings deposits (–1.6 percentage points).

3.2 Consumer loans

Like in the case of housing loans, not being employed accounts for the most significant negative influence on having a consumer loan, as is evidenced by retired persons (–7.6 percentage points), self-employed persons (–7.0 percentage points), students (–5.9 percentage points) and unemployed persons (–5.3 percentage points). Other factors that significantly decrease a person’s probability of holding a consumer loan are owning a house (–3.7 percentage points) and the ability to save money (–1.7 percentage points).

3.3 Other loans

Like with housing and consumer loans, lack of employment significantly ­reduces the probability of having a loan for other purposes. This concerns students (–1.3 percentage points) and retired persons (–0.4 percentage points) in particular. Other factors with a significant negative effect are the ability to save money
(–1.5 percentage points), living in a dwelling in good condition (–0.9 percentage points), a preference for holding cash over having a savings account (–0.9 percentage points) and personal savings (–0.5 percentage points).

4 Understanding the drivers of loans: commonalities and differences

Owning a car (as an indicator of a certain degree of wealth) has a significant effect on both housing and consumer loans. For both housing and other loans, in turn, the following factors are relevant: higher education, the belief that depositing money in banks is safe, trust in police and a preference for cash over a savings ­account. While education is of secondary importance for the more vague category of consumer loans, a higher level of formal education helps deliberately choose to take out a housing loan or a loan for education, business or professional activities and other purposes.

Only one factor turned out to be significant for both consumer and other loans: the expectation that prices will increase strongly over the next year. This may cause people to rush to buy consumer goods, and take out a loan to this end. In light of the statistical results, this also seems to be true for other loans, while it is less relevant for housing loans.

Higher income (often a prerequisite for banks to grant a loan) has a significant influence on housing loans. Interestingly, income does not play a significant role for consumer loans or loans for other purposes.

Additional factors impacting on housing loans are being of middle age (35–
59 years), owning real estate (which can serve as collateral), having savings and being able to save money as well as high financial literacy and a lack of interest in emigration. That these variables are significant does not come as a surprise: people in the middle of their working life tend to earn an income high enough for taking out and qualifying for larger loans such as housing loans. The same holds true for people who have savings and are able to save, which allows them to sustainably service a long-term loan. People having acquired a certain level of financial ­knowledge are less likely to fall into potential credit traps. Also, people financing a home purchase with a housing loan are not or less likely to have migration intentions than people without any long-term obligations in their home country and who have not built or bought their own home there.

Factors that are only significant for taking out consumer loans are a large household size of at least three persons and the absence of real estate ownership. Multiperson households usually need to buy more consumer goods for daily use, and sometimes have to do so on credit. Owner-occupied housing, in turn, is often financed by mortgages and leaves little room for taking out further loans.

Some of the independent variables used in the logistic regression are only ­significant for loans for education, business or professional activities and other ­purposes: having no current savings, having experienced periods of higher inflation, believing that it is very common in the country to hold euro cash, intending to migrate and living in a dwelling in poor condition. The two most straightforward factors are lack of savings, which necessitates borrowing, and the intention to ­migrate, which often serves an educational purpose or a career change.

5 Summary and conclusions

The data collected in the OeNB Euro Survey offer diverse variables that could influence individuals in CESEE in taking out different types of loans. They include not only sociodemographic characteristics, but also information on economic ­attitudes, expectations, trust in institutions and financial literacy. Hence, our ­analysis resulted in a comprehensive picture of potential determinants and their importance. Apart from offering interesting insights from a scientific point of view, our study provides some policy-relevant takeaways. First, the importance of a high income level, current savings and the ability to save (for having a housing loan) as well as the importance of disposing of earned income (for all three loan types under investigation) suggest strong interrelations between macroeconomic, redistribution and microprudential policies for financial stability. From a macro­financial point of view, a higher share of consumer loans may be regarded as risky if these loans are repaid out of current income and not backed by secured products. The descriptive analysis showed that the shares of consumer loans increased strongly in several CESEE countries (Albania, Bulgaria, Croatia, Poland, Serbia and Czechia) between 2018 and 2019. While housing loans in general can be ­considered safer in this respect, housing loans with higher maturities bear risks as households’ income paths may be subject to change (impressively demonstrated by the COVID-19 pandemic) besides being more sensitive to interest rate risk and currency risk. According to the OeNB Euro Survey data, especially Bosnia and Herzegovina and North Macedonia saw their shares of housing loans rise between 2017 and 2019. Second, well-considered loan decisions driven by long-term goals are strongly related to a high level of education (the data show this for housing loans and for loans for education, business or professional activities and other ­purposes) as well as to pronounced financial literacy (in the case of housing loans), with both factors potentially lowering the risk propensity of the borrower. In ­contrast, the propensity of having a consumer loan is not correlated to (financial) education. Furthermore, our analysis provided evidence for the significant ­influence trust in both domestic banks and the EU has on borrowers to take out any loan regardless of its purpose. Trust in institutions as a prerequisite for a stable society ensures consumption and investment also via loans and will thus help strengthen the economic system in times of weak economic activity.

References

Altundere, M. B. 2014. The Relationship Between Sociability and Household Debt. In: ADAM AKADEMİ, Cilt 4/2 2014. 27–58.

Apel, H. and M. Fertig. 2009. Operationalisierung von „Beschäftigungsfähigkeit“ – ein ­methodischer Beitrag zur Entwicklung eines Messkonzepts. In: Zeitschrift für Arbeitsmarkt­Forschung 42. 5–28.

Beckmann, E., A. Hildebrandt and K. Jäger-Gyovai. 2015. Current risks in the CESEE ­residential property market: evidence from the OeNB Euro Survey. In: Focus on European ­Economic Integration Q3/15. OeNB. 26–38.

Beckmann, E., C. Hainz, W. Pyle and S. Reiter. 2019. Homeownership and housing
finance patterns one generation after the fall of communism. In: Focus on European Economic Integration Q4/19. OeNB. 79–101.

Bittner, M. 2020. Der Euro Survey der Oesterreichischen Nationalbank (OeNB). Eine seit 2007 einzigartige Datenerhebung in Staaten Zentral-, Ost- und Südosteuropas. Sozialwissenschaftliche Rundschau (60. Jg.) Heft 2/2020. 226–239.

Bover, O., J. M. Casado, S. Costa, P. Du Caju, Y. McCarthy, E. Sierminska,
P. ­Tzamourani, E. Villanueva and T. Zavadil. 2016. The Distribution of Debt across ­Euro-Area Countries: The Role of Individual Characteristics, Institutions, and Credit Conditions. In: International Journal of Central Banking. June. 71–128.

Czech National Bank. 2020. Risks to financial stability and their indicators.

EBA (European Banking Authority). 2020. Consumer Lending in the EU Banking Sector. Thematic Note. EBA/REP/2020/11. March.

EIB (European Investment Bank). 2019. CESEE Bank Lending Survey. Autumn 2019.

Hake, M. and P. Poyntner. 2019. Household loans in CESEE from a new perspective: the role of income distribution. In: Focus on European Economic Integration Q2/19. OeNB. 75–93.

Lewin-Epstein, N. and I. M. Semyonov. 2016. Household debt in midlife and old age:
A ­multinational study. In: International Journal of Comparative Sociology 57(3). 151–172.

Magyar Nemzeti Bank. 2020. Financial Stability Report. November.

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Event wrap-ups

88th East Jour Fixe

Household financial vulnerabilities in CESEE: what impact has COVID-19 had and how to best measure the changes?

Compiled by Elisabeth Beckmann, Pirmin Fessler, Julia Wörz ³²

A case study from the UK: tracking labor market and financial inequalities through the pandemic

Financial vulnerabilities: international comparison

Financial vulnerabilities: focus on CESEE

26th Global Economy Lecture

Partha Dasgupta on “Viewing the future from the population-consumption-environment nexus”

Compiled by Andreas Breitenfellner and Maria Silgoner ³⁵

In his introductory remarks, OeNB Governor Robert Holzmann discussed to what extent central banks – and more broadly macroeconomic policies – can ­effectively contribute to maintaining biodiversity. The Eurosystem is committed to considering the impact of climate change in its monetary policy framework, supervisory activities and reserve portfolios. In terms of preserving biodiversity, the responsibility for carrying out appropriate structural reforms lies with government authorities, according to the OeNB governor. This notwithstanding, central bankers have started to analyze the potential economic and financial impacts of biodiversity loss. Moreover, both financial markets and their regulation may play a key role in pricing in nature. Governor Holzmann emphasized the need to accelerate the ­demographic transition toward population stabilization – particularly in sub-Saharan Africa – to secure economic well-being while reducing pressures on nature.

Professor Dasgupta started out by asking how we can account for nature in economic science and policy. So far, economic studies have focused exclusively on produced capital and human capital. Yet, it is a profound error to bypass nature – our home and most precious resource. Chart 1, taken from “The Dasgupta Review,” identifies the post-World War II period as a takeoff point when global GDP started to increase sharply. Global real GDP per capita has quintupled since 1950. At around the same time, population growth started to shoot up as well, given longer life expectancy, while fertility rates only began to go down later on.

Such figures would suggest that we live in the best of all times. What they do hide, though, is that we have accumulated produced and human capital by exploiting and dismantling the ecosystem. While produced capital has doubled since 1992, natural capital, defined as renewable and nonrenewable natural resources, has been shrinking at an alarming rate. The COVID-19 pandemic is just the visible tip of the iceberg of damage humankind has inflicted on nature.

Professor Dasgupta emphasized the gap between what we demand of nature and what nature is able to supply on a sustainable basis. Currently we are faced with a widening of the imbalance between the ecological footprint – determined crucially by GDP growth y – and the regeneration rate of the biosphere G(S), as indicated by figure 1. As a result of this, we are continuously drawing down natural capital S.

The left-hand side of the inequality crucially depends on the factor α, an index of efficiency. If α goes up, e.g. because of a move to clean energy, the left-hand side declines. Since services of nature are complementary, the reduction of one factor of nature (such as fossil fuels) may have similar impacts on other factors.

Professor Dasgupta put special emphasis on the factor N on the left-hand side of the inequality, which stands for population growth. While the fertility transition has been broadly completed in most regions around the world, UN projections show that the population in sub-Saharan Africa might double until the middle of the century. Since the region’s GDP is small (less than 5% of global GDP), population dynamics are currently not on the political agenda. However, the ­region may matter more in the future as the countries exploit nature in an attempt to improve living standards. As long as the exploitation of nature is not priced in, the export of primary products represents a transfer of wealth from poor to rich countries. To slow down population growth, Professor Dasgupta saw scope for changing social norms and culture. He stressed the importance of empowering women, especially through education. While referring to several success stories, he, at the same time, also dampened expectations, pointing to the high costs and challenges associated with educational attainments.

The discussion following the Global Economy Lecture revolved inter alia around the limits to material (per capita) growth and the crucial role of adequately pricing the services of nature. Aspects of biodiversity will only become an integral part of our lives if we start to feel the price of dismantling the ecosystem. Therefore, Dasgupta envisages new international institutions that may create markets for many services of nature, including sea transport. Moreover, he suggested assisting poor countries in coping with climate change and allowing them to improve living standards without drawing on natural resources. By managing risks appropriately within their own portfolios, central banks can have considerable signaling power for financial markets and thus have a material impact on halting the degradation of natural resources. Professor Dasgupta concluded by underlining the uncertainty about future developments and how little we know about how humankind will adapt to new circumstances.

Statistical annex

Table 1: Output, unemployment and prices  

	2018	2019	2020	Q1 20	Q2 20	Q3 20	Q4 20	Q1 21	Q2 21
Gross domestic product	Annual real change in %
Albania	4.1	2.2	–3.3	–2.8	–11.3	–3.5	2.4	5.5	17.9
Bosnia and Herzegovina1	3.7	2.8	–4.3	3.3	–8.0	–5.0	–2.6	2.5	11.6
Kosovo	3.8	4.2	–3.9	1.5	–9.1	–7.3	1.8	4.2	16.3
Montenegro	5.1	4.1	–15.2	2.5	–20.5	–27.1	–7.8	–6.5	19.0
North Macedonia	2.9	3.2	–4.5	0.9	–14.9	–3.3	–0.7	–1.9	13.1
Serbia	4.5	4.2	–1.0	5.2	–6.3	–1.4	–1.0	1.8	13.7
Ukraine	3.4	3.2	–4.0	–1.2	–11.2	–3.5	–0.5	–2.2	5.7
Industrial production	Annual real change in %
Albania	18.7	–1.1	–6.3	–1.6	–22.6	–3.1	3.2	22.9	51.5
Bosnia and Herzegovina2	1.6	–5.3	–6.4	–4.0	–14.0	–7.0	–0.5	7.2	19.6
Kosovo	2.4	4.7	10.1	4.9	16.5	7.7	9.2	0.8	6.2
Montenegro	22.4	–6.3	–1.0	17.9	–21.7	–4.7	–7.9	9.3	–5.2
North Macedonia	5.4	3.7	–9.6	–3.7	–25.0	–7.5	–2.3	–6.1	22.3
Serbia	1.3	0.3	0.4	4.2	–7.7	3.4	1.7	3.8	14.7
Ukraine	3.0	–0.5	–4.5	–4.3	–10.8	–3.5	0.4	–2.0	6.5
Average gross wages – total economy	Annual change in %
Albania	3.1	3.8	2.7	3.3	2.9	1.8	2.8	5.2	4.7
Bosnia and Herzegovina	3.1	4.3	4.0	4.7	3.6	3.9	3.7	3.5	4.3
Kosovo	5.1	5.3	2.3	..	..	..	..	..	..
Montenegro	0.1	0.8	1.3	2.2	1.2	1.1	0.8	0.3	1.5
North Macedonia	5.8	5.1	8.3	11.4	5.7	9.1	7.3	4.0	8.7
Serbia	4.0	10.5	9.5	10.4	8.7	9.5	9.3	7.1	9.6
Ukraine	24.8	18.5	10.4	14.3	4.0	9.5	13.9	16.6	27.1
Unemployment rate3	%
Albania	12.8	12.8	12.0	11.9	12.5	12.1	12.3	12.6	12.1
Bosnia and Herzegovina	18.9	18.9	16.4	..	..	..	..	..	..
Kosovo	29.5	29.5	25.7	25.0	27.2	24.6	27.0	25.8	..
Montenegro	15.5	15.5	15.4	16.6	15.7	19.6	21.5	19.6	17.3
North Macedonia	21.0	21.0	17.5	16.4	16.9	16.7	16.3	16.1	16.0
Serbia	13.3	13.3	10.9	10.2	7.7	9.5	10.5	13.2	11.4
Ukraine	9.1	9.1	8.6	8.9	10.3	9.9	10.5	10.9	9.7
Consumer price index	Period average, annual change in %
Albania	2.0	1.4	1.6	1.6	1.9	1.4	1.6	0.9	1.8
Bosnia and Herzegovina	1.4	0.6	–1.1	0.4	–1.6	–1.4	–1.6	–1.2	1.4
Kosovo	1.1	2.7	0.2	1.1	0.2	–0.3	–0.1	0.6	2.0
Montenegro	2.6	0.4	–0.3	0.8	–0.7	–0.3	–0.8	0.0	2.3
North Macedonia	1.5	0.8	1.2	0.6	0.5	1.5	2.2	2.0	2.8
Serbia	2.0	1.9	1.6	1.8	1.0	1.9	1.6	1.4	3.2
Ukraine	11.0	7.9	2.7	2.6	2.1	2.4	3.8	7.4	9.1
Source: Eurostat, Macrobond, national statistical offices, wiiw.
1 Expenditure-side data.
2 Value added in the national accounts.
3 Labor force survey.

Table 2: External accounts  

	2018	2019	2020	Q1 20	Q2 20	Q3 20	Q4 20	Q1 21	Q2 21
Trade balance	% of GDP
Albania	–22.4	–23.0	–23.0	–21.3	–21.1	–23.7	–24.9	–23.1	–21.8
Bosnia and Herzegovina	–22.5	–22.6	–18.6	–19.1	–17.7	–18.5	–18.2	–15.9	–19.7
Kosovo	–40.7	–40.1	–37.8	–38.8	–33.9	–37.2	–41.0	–44.0	–44.5
Montenegro	–43.9	–41.7	–39.1	–46.4	–44.9	–34.2	–34.4	–36.8	–44.1
North Macedonia	–16.2	–17.6	–16.8	–20.9	–15.1	–14.5	–16.6	–19.2	–20.1
Serbia	–11.9	–12.2	–11.2	–14.4	–9.3	–10.2	–11.1	–8.6	–12.5
Ukraine	–9.8	–9.2	–4.2	–5.1	–1.7	–5.0	–5.2	–5.3	–0.7
Current plus capital account balance	% of GDP
Albania	–5.9	–7.4	–7.8	–6.8	–11.3	–4.6	–8.3	–6.5	–5.0
Bosnia and Herzegovina	–2.4	–2.2	–2.3	–2.1	–3.3	–3.4	–2.3	–1.5	–3.9
Kosovo	–7.7	–5.8	–6.8	–4.6	–8.6	–5.3	–8.4	–9.3	–14.9
Montenegro	–17.0	–15.0	–26.0	–35.1	–35.7	–18.0	–19.8	–18.5	–21.9
North Macedonia	0.0	–3.2	–3.4	–6.0	–3.8	–1.9	–2.3	–2.2	–4.2
Serbia	–4.9	–7.1	–4.3	–8.9	–2.9	–4.1	–1.7	0.9	–5.1
Ukraine	–4.9	–2.6	4.1	6.0	6.1	1.3	1.4	–2.4	0.5
Foreign direct investment1	% of GDP
Albania	–8.0	–7.6	–6.9	–7.2	–7.4	–6.7	–6.2	–6.7	–5.7
Bosnia and Herzegovina	–3.0	–2.0	–1.9	–2.8	–2.7	–1.9	0.4	–3.9	–4.5
Kosovo	–3.4	–2.7	–4.2	–6.4	–3.7	–3.3	–3.6	–5.7	–4.6
Montenegro	–6.9	–6.2	–11.2	–14.6	–13.9	–7.1	–10.6	–9.6	–10.8
North Macedonia	–5.6	–3.2	–1.9	–5.2	0.3	0.3	–2.8	0.5	–7.3
Serbia	–7.4	–7.7	–6.2	–7.2	–5.7	–2.4	–9.5	–7.3	–5.7
Ukraine	–3.4	–3.4	0.6	4.6	–3.8	0.2	–0.6	–4.0	–3.2
Gross external debt	End of period, % of GDP
Albania	65.1	60.4	65.8	59.8	67.8	67.9	65.5	66.8	62.6
Bosnia and Herzegovina	66.0	63.4	65.4	62.3	64.6	63.5	65.0	63.5	59.7
Kosovo	30.3	30.7	37.2	31.2	32.9	35.2	37.2	36.5	37.3
Montenegro	164.7	167.9	224.1	..	..	..	..	..	..
North Macedonia	73.0	72.7	80.2	73.6	81.0	84.5	79.3	90.8	90.1
Serbia	83.0	82.7	86.4	82.5	86.9	86.3	86.4	89.1	85.4
Ukraine	90.1	78.1	75.8	76.4	77.1	75.6	75.8	78.3	75.5
Reserve assets excluding gold	Period average, annual change in %
Albania	26.0	23.7	29.3	23.3	30.6	30.7	29.1	29.6	27.0
Bosnia and Herzegovina	34.1	34.8	40.0	34.4	36.6	37.8	39.7	38.9	40.0
Kosovo2	11.4	12.2	13.2	11.9	13.0	13.0	13.2	11.9	13.1
Montenegro	22.5	26.6	41.0	18.6	25.2	24.4	41.0	33.4	30.9
North Macedonia	24.4	26.4	28.0	23.9	30.4	29.1	28.0	33.5	32.9
Serbia	24.5	26.2	25.2	24.9	26.7	24.5	25.2	26.8	25.2
Ukraine	15.6	15.4	16.6	15.0	17.1	15.5	16.6	16.3	16.2
Source: National central banks, national statistical offices, wiiw.
1 + = net accumulation of assets larger than net accumulation of liabilities (net outflow of capital). − = net accumulation of assets smaller than net accumulation of liabilities (net inflow of capital).
2 Reserve assets (including gold).

Table 3: Banking sector indicators  

	2018	2019	2020	Q1 20	Q2 20	Q3 20	Q4 20	Q1 21	Q2 21
Bank loans to the domestic nonbank private sector	End of period, annual change in %
Albania1	–0.3	6.9	5.9	6.2	4.9	4.0	5.9	5.7	7.5
Bosnia and Herzegovina1	5.7	6.7	–2.5	3.6	0.4	–0.5	–2.5	–0.4	1.9
Kosovo	10.9	10.0	7.1	9.2	6.4	6.4	7.1	7.7	12.2
Montenegro	9.6	6.8	3.0	5.6	7.1	7.3	3.0	1.5	2.2
North Macedonia1	6.4	5.2	4.3	4.6	5.7	7.1	4.3	6.1	5.7
Serbia1	8.4	8.1	10.9	9.6	12.4	14.0	10.9	10.4	8.1
Ukraine1	6.5	–3.6	–10.5	–2.4	–3.9	–7.8	–10.5	–9.4	–3.4
Share of foreign currency loans2	End of period, %
Albania	50.4	48.8	48.3	50.6	49.4	48.0	48.3	47.9	47.7
Bosnia and Herzegovina	59.0	52.6	52.2	52.1	52.2	52.0	52.2	51.2	49.8
Kosovo	–1.0	–1.0	–1.0	..	..	..	..	..	..
Montenegro3	5.7	3.1	0.0	2.7	2.9	2.8	2.9	3.7	3.1
North Macedonia	40.4	41.5	41.5	41.4	41.3	41.4	41.5	41.6	41.3
Serbia4	66.3	66.1	62.1	66.1	64.8	62.8	62.1	61.7	60.8
Ukraine	42.9	37.0	37.1	39.8	39.0	38.2	37.1	35.5	32.1
NPL ratio	%
Albania	11.1	8.4	8.1	8.2	8.1	8.3	8.1	8.0	7.1
Bosnia and Herzegovina	8.8	7.4	6.1	6.6	6.7	6.6	6.1	6.0	5.7
Kosovo	2.7	2.0	2.7	2.5	2.6	2.7	2.7	2.7	2.5
Montenegro	6.7	4.7	5.5	5.1	5.3	5.6	5.5	5.5	5.7
North Macedonia	4.8	3.8	3.2	4.0	4.4	3.4	3.2	3.3	3.6
Serbia	5.7	4.1	3.7	4.0	3.7	3.4	3.7	3.9	3.6
Ukraine	52.9	48.4	41.0	48.9	48.5	45.6	41.0	39.9	37.2
Tier 1 capital ratio	%
Albania	17.0	17.1	17.2	17.9	17.0	17.5	17.2	17.0	16.9
Bosnia and Herzegovina	16.5	17.5	18.1	16.7	17.3	17.3	18.1	17.9	18.2
Kosovo5	17.0	15.9	16.5	15.1	16.7	16.9	16.5	17.1	17.3
Montenegro5	15.6	17.7	18.5	17.4	19.6	19.3	18.5	19.3	19.2
North Macedonia	15.0	14.8	15.3	15.0	15.5	15.5	15.3	15.4	15.9
Serbia	21.1	22.4	21.6	21.9	21.8	21.5	21.6	21.4	21.1
Ukraine	10.5	13.5	15.7	13.0	15.8	16.1	15.7	16.2	16.1
Source: National central banks.
1 Foreign currency component at constant exchange rates.
2 In total loans to the nonbank private sector. As far as available, including loans indexed to foreign currencies.
3 Share in total loans to all sectors.
4 Including securities.
5 Overall capital adequacy ratio.

Table 4: Monetary and fiscal policy indicators  

	2018	2019	2020	Q1 20	Q2 20	Q3 20	Q4 20	Q1 21	Q2 21
Key interest rate	End of period, %
Albania (one-week repo rate)	1.0	1.0	0.5	0.5	0.5	0.5	0.5	0.5	0.5
Bosnia and Herzegovina1	..	..	..	..	..	..	..	..	..
Kosovo1	..	..	..	..	..	..	..	..	..
Montenegro1	..	..	..	..	..	..	..	..	..
North Macedonia (28/35-day central bank bills)	2.5	2.3	1.5	2.0	1.5	1.5	1.5	1.3	1.3
Serbia (one-week repo rate)	3.0	2.3	1.0	1.8	1.3	1.3	1.0	1.0	1.0
Ukraine (discount rate)	18.0	13.5	6.0	10.0	6.0	6.0	6.0	6.5	7.5
Three-month interbank rate	Period average, %
Albania	1.8	1.4	1.5	1.5	1.5	1.4	1.4	1.5	1.4
Bosnia and Herzegovina	..	..	..	..	..	..	..	..	..
Kosovo	..	..	..	..	..	..	..	..	..
Montenegro	..	..	..	..	..	..	..	..	..
North Macedonia	1.5	1.5	1.4	1.4	1.4	1.4	1.4	1.4	1.3
Serbia	3.0	2.5	1.2	1.6	1.2	1.0	1.0	0.9	0.9
Ukraine	13.7	14.8	10.0	12.6	11.0	8.4	8.1	7.7	7.0
Exchange rate	Period average, national currency per EUR
Albania	127.6	123.0	123.8	122.8	124.5	123.9	123.8	123.5	123.0
Bosnia and Herzegovina	2.0	2.0	2.0	2.0	2.0	2.0	2.0	2.0	2.0
Kosovo	..	..	..	..	..	..	..	..	..
Montenegro	..	..	..	..	..	..	..	..	..
North Macedonia	61.5	61.5	61.7	61.6	61.7	61.7	61.7	61.7	61.6
Serbia	118.3	117.9	117.6	117.6	117.6	117.6	117.6	117.6	117.6
Ukraine	32.1	28.9	30.8	27.6	29.6	32.3	33.7	33.7	33.2
	2018	2019	2020	2018	2019	2020
	General government ­balance			General government debt
	End of period, % of GDP
Albania	–1.6	–2.0	–6.3	64.9	63.9	78.8
Bosnia and Herzegovina	2.2	1.9	–4.0	34.2	32.8	38.5
Kosovo	0.4	1.0	–2.0	16.3	16.9	21.9
Montenegro	–3.9	–1.9	–8.8	70.0	76.5	87.3
North Macedonia	–1.8	–2.0	–8.7	40.4	40.7	51.7
Serbia	0.6	–0.2	–8.9	54.4	52.9	61.5
Ukraine	–1.9	–2.2	–5.3	60.9	50.2	60.8
Source: European Commission (Ameco), Macrobond, national central banks, wiiw.
1 No policy rate available (unilateral euroization or currency board).

Conventions used