Economic outlook 2023
Although pricing is losing momentum, inflation rates should remain at a high level in 2023. State subsidies and increasing wages may have some potential of second-round effects. In particular, inflation will likely continue to be defined by events on the supply side. The Russian attack on Ukraine contributed enormously to rising energy prices. The accompanying acceleration of an energy transition towards renewable energies, which was already planned, should hold energy prices at a high level into the future. Accordingly, the central banks’ policies will continue to be correspondingly restrictive or will become more restrictive, and will provide a stable basis for the expectation of increased returns.
China is expected to remain a relevant and decisive factor. The U-turn in its COVID-19 policy should continue to pose a risk to supply chains for as long as infection rates remain high. As a result, there is no big difference compared with the previous zero-COVID strategy – at least not in the short term. That said, the recovery of China’s domestic demand in particular represents a key criterion for global development.
In this environment, a considerable improvement in consumer sentiment and therefore a recovery of private demand can only be expected with rather high levels of uncertainty. In all, 2023 should be the culmination of all adverse impacts. The most likely scenario is that there will be weak growth at the start of 2023, with an indication that recovery will take place towards the end of the year.
In this context, the analysts at Erste Group expect almost complete stagnation of the economy in the eurozone in the 1st quarter of 2023. With pricing losing momentum, consumption should become more important in the 2nd half of the year. Falling employment may cause a certain risk to take effect here. As the environment continues to brighten, investments should increase. With energy and gas prices representing a considerable cause of uncertainty, Erste Group expects growth of 0.6% in 2023, accompanied by an average inflation of 5.6%.
A similar situation is expected in Austria, with the economy expected to grow by 0.6% in 2023 and inflation to continue to ease, with an average of 6.0% for 2023 to be reflected in the budget. Pressure on the employment market as a result of the pandemic seems, for the most part, to have been absorbed by short-term work. After high levels of unemployment in previous years, an unemployment rate of 4.6% is expected for 2023.
The situation is considerably different in the CEE region in that the central banks of the countries in this region adjusted their monetary policies to the situation at a much earlier stage – and in a decidedly spirited manner – and should therefore already have reached the peak of their cycles of interest rate increases. Even though inflation rates in the CEE region have increased further, and have even reached 22% in Hungary, a turning point is still expected. The average level of inflation for the region is expected to be at 12.1% for 2023. External factors such as energy prices and supply chains are also decisive factors in the CEE region and should therefore also lead to an easing of inflation rates in the 2nd half of 2023. Depending on the commitment of local governments, considerable financial contributions from the EU could well support economic development in the region. For example, Romania and Croatia are currently the leading countries making use of the economic programmes put in place. Private consumption in the CEE region will remain subdued due to real wage decreases, which has an influence on the region’s moderate growth outlook of 0.9% for real GDP. In terms of the unemployment rate, it is currently assumed that it will rise from 4.8% to 5.1% in 2023.