ESZTERGOM, Hungary, Aug 5 (Reuters) – In the weeks following Russia’s invasion of Ukraine, major Western Europe economies began to falter. But there was also a boom further east, thanks to double-digit wage increases in some countries and generous government grants.
is no longer.
A sharp fall in retail sales and falling confidence indicators suggest the cost-of-living crisis has caught up with the eastern wing of Europe, where people are now facing a harsh reality check as stubborn double-digit inflation weighs on their incomes. while food prices increase by 15% – 22% and energy costs increase.
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Analysts are lowering their GDP forecasts as domestic consumption suffers and the risk of a recession across Europe is high.
The family members have started to prepare. Poles are taking short vacations, Czechs are saving on restaurant bills while some others seek jobs, and in Hungary — where grocery inflation was 22.1% annually in June alone — people are buying grocery bills and consumer goods. To be cut in the form of a slide. The forint currency drives up import prices.
“One day I went to the bakery and a loaf of bread cost 550 forints. I’m going the next day and it’s 650. Jesus Christ!” said Lajos, a 73-year-old man, shopping at a market. The northern city of Esztergom on the Danube.
Standing by his bike and not naming his family, grey-bearded Lajos said the rise in food prices has eaten away part of his monthly pension and he is unable to pay the hefty utility bills that are set to rise after the government is finalized. The month ended the price cap for heavily used homes.
So he makes his plan.
“I can heat with gas, but also with wood … because I have a tiled stove. So we go into a room with my wife, heat up the stove, put on warm sweaters and watch TV.”
Across Hungary, retail sales (HURETY=ECI) growth slowed to an annualized 4.5% in June, from 10.9% in May, with sales of furniture and electronics falling 4.3% thanks to a massive tax break from Prime Minister Viktor . and suggests the effect of financial transfer. Orban’s government ahead of April’s elections has now faded.
Polish retail sales growth also slowed to an annualized 3.2% in June, from 8.2% in May, while Czech adjusted retail sales excluding autos and motorcycles fell 6.0% yoy in June, after rising 6.0% in May was down .6%, data showed on Friday.
“Houses have reacted meaningfully to the rising cost of living, and the consumption of things is starting to slow down,” said Peter Virovaz, an analyst at ING in Budapest.
According to a survey conducted by the Hungarian National Bank on Friday, commercial banks expect demand for credit to ease in the second half of the year and the credit situation to ease.
Slowing domestic demand, rising interest rates, government spending cuts and rising corporate costs will slow economic growth in Central Europe in the second half of this year and slow sharply in 2023.
According to Citigroup, Hungary’s economy could grow by around 5% in 2022, but there are downside risks to its 1% forecast for next year.
“The risk of persistently high energy prices, keeping inflation in double digits in 2023, and our updated internal forecast for the euro area point to downside risks,” it said.
The Central Bank of Hungary still forecasts growth of 2.0% to 3.0% for 2023 and will publish new forecasts in September.
According to government estimates, the Polish economy is expected to grow by 3.8% this year and by 3.2% in 2023.
The Czech central bank, which was the first to halt its rate-hiking cycle on Thursday, is forecasting a turn-of-the-year recession as the economy will contract by 0.4% in the fourth quarter of 2022 and 1% in the first quarter. 2023
“Our base case is a mild recession – a technical recession – we have two straight quarters of declines… This would be a healthy recession that also allows inflation to fall,” Gov. Ales Michal said.
According to the travel website Noclegi.pl, while a boom in the tourism sector is still expected for the summer, Poles have started to save on travel.
“We can see that the feature of this season is reducing visits by an average of one day and postponing bookings to the last minute,” said Natalia Jaworska, an expert at Noclegi.pl. Poles have also started saving on food.
Data from various restaurant payment services such as Sodexo also showed a drop in restaurant spending in the Czech Republic. The latest survey by polling institute STEM in June found that 80% of Czech households are cutting back or cutting back on their purchases due to soaring energy bills.
Czech consumer confidence hit a new low in July, according to a monthly survey by the Statistics Office, while a poll by think tank GKI showed Hungary’s consumer confidence index fell to its lowest level since April 2020 in July, following the first wave of the COVID-19 pandemic.
Czech filmmaker Martin Hulovec, 43, said he wasn’t worried about his income at the moment but was less optimistic about the future.
“The hard times have not yet come for me to deal with … but they will come,” Hulovec said.
“I would definitely look for more energy savings… I definitely wouldn’t buy new stuff for kids, clothes or exercise equipment. You can find it for half the price.”
And that, too, will turn on the heating less when winter comes.
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Reporting and writing by Krzysztina Thanh, additional reporting by Jason Howett and Robert Müller in Prague and Anna Wodarzak-Semzuk in Warsaw, editing by Hugh Lawson
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