Marked by the consequences of the war in Ukraine, the countries of Central and Southeastern Europe (CEE) are heading into an economically difficult phase.

The conflict between Russia and Ukraine will probably last longer and have long-term economic and political consequences for them, writes the Italian bank Unicredit in its latest regional study.

She is not alone in this.

Andreas Mihm

Business correspondent for Austria, Central and Eastern Europe and Turkey based in Vienna.

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Analysts expect a "technical recession" even without the gas flows being cut off in countries such as the Czech Republic, Poland and Hungary, i.e. growth falling below the previous year's level for two consecutive quarters.

The Wiener Raiffeisenbank International (RBI) therefore sees the local currencies in a rather "difficult environment".

More moderate growth expected in 2023

The dangers for the region are "many, ranging from higher and sustained inflationary pressures to slower economic growth to widening foreign trade and budget deficits as well as disruptions to supply chains and Russian energy supplies," according to rating agency Scope.

In addition, she identifies “creditworthiness challenges for CEE countries in 2022 and beyond”.

Because growth could be more moderate in 2023.

However, should the dip in growth be deeper and last longer than expected today, this could have an adverse effect on the credit quality of the Central and Eastern European EU members.

Peak of price increases in autumn

The International Monetary Fund sees all of Europe's economy suffering from the aftermath of the war and tighter monetary policy.

While the monetary policy consequences in the euro zone are only now being felt due to the ECB's cautious policy, the non-euro zone EU countries Czech Republic, Hungary and Poland have been familiar with rising interest rates for some time.

Higher interest rates, in turn, are a result of the supply shocks that fueled inflation in the second quarter.

Many observers expect price increases to peak in autumn.

Dan Bucsa, head of Unicredit's Eastern Europe observer, is not so sure.

He expects inflation to continue "probably also in 2022 and 2023 due to rising food and energy prices".

The Hungarian central bank is showing just how big the inflation shock is these days.

It raised the interest rate by 100 basis points to 10.75 percent.

Combined, that's a 485-point rate hike over the past three sessions.

Further rate hikes are likely in view of an inflation rate of 17 percent expected for autumn.

Experts at ING Bank now see "a gradual slowdown in the tightening cycle with a value of 14 percent" by the end of the year.

In the Czech Republic, it is doubtful whether the central bank will continue on its current course of interest rate hikes beyond the current level of 7 percent after the reshuffle of four of the seven positions on the Bank Council.

According to the classic view, an inflation rate of 17.2 percent most recently would speak in favor of this at the meeting next Thursday.

However, attempts are being made in Prague to take the pressure off the crown with ongoing interventions in the foreign exchange market.

Prague's austerity plan is not working

There is an incentive for the central bank to support the krona "because a stronger exchange rate reduces the pressure to raise interest rates somewhat," writes David Vagenknecht from RBI.

However, he is skeptical that this strategy could work in the medium term given the existing fundamentals.