Emerging Europe: results for the second quarter of 2023 and outlook for the economy and banks in CEE and SEE countries
The macroeconomic scenario was weak in emerging Europe in the second quarter of 2023. More specifically, in the Central Eastern European area, the GDP recorded a decline by 0.5%, while a more favourable scenario was outlined for South Eastern Europe countries, which - albeit slowing down compared to the previous quarter - recorded an increase of 1.5% year on year.
The gap between countries remains very wide. While Poland suffered a GDP reduction by 3.7%, and Hungary by 0.3%, a positive change was recorded in the other countries. Similarly, in the SEE area, GDP was below expectations especially in Romania, with a 1% increase, slowing down compared to the previous quarters.
Expectations are now for a recovery of the cycle, as also suggested by the favourable high-frequency economic indicators. In 2024, we expect economic growth of 2.6% and 2.9% in CEE and SEE countries, respectively.
Inflation is showing signs of slowing down – and of slowly converging towards the Central Banks' targets – which are reflected in monetary policy choices. Poland has already started a policy rate reduction cycle, Hungary has reduced the corridor with rates on overnight loans, while the other countries are expected to cut their benchmark rates next year.
In this macroeconomic context, bank loans are expected to remain weak in the current year, closing 2023 at +2% in CEE countries and +5.1% in SEE countries, and gradually improving in 2024 in both household and business sectors. Despite the weakness in salaries, deposits maintained a strong performance through June, supported by precautionary reasons, posting +7.9% year on year in CEE countries and +9.2% year on year in SEE countries, and are expected to continue to grow in 2024 in a context of persistently moderate economic recovery. In Slovakia alone, deposits are unable to meet the demand for loans, thereby generating some tension on funding as highlighted by the loan/deposit ratio, which remains above 110%.
As regards banking rates, the reduction expected in 2024 could lead to a decline in the spread, even though profitability is expected to remain good thanks to the economic recovery.
SOURCE Intesa Sanpaolo Research elaborations on Central Banks’ data.
Data and estimates as at 2 October 2023.