Central European and Baltic governments are launching austerity programmes to cut their budget deficits. Czechia, Slovakia and Estonia are all making major cuts in their spending while the major outliers are Poland and Hungary, whose right-wing governments are eschewing cuts despite their budget deficits and the freezing of vital EU aid payments.
Indeed, Poland’s Law and Justice (PiS) party has ignored the country’s already high inflation to announce a series of spending giveaways before this October’s election. Hungary has reined back some subsidies given out before last spring’s general election but is relying on one-off windfall taxes on retailers, banks, pharmaceutical companies and energy suppliers to reduce the country’s huge budget deficit.
Cuts are seen as essential in East Europe to handle the economic impacts of the COVID-19 pandemic and the spike in energy prices following the Russian invasion of Ukraine. Many countries are still mired in recession as high energy prices, inflation and interest rates batter consumers and companies.
The German economy also declined last Quarter (by 0.3%) and stagnation or recession in the Eurozone threatens to dampen any nascent recovery. This year only Slovakia is expected to grow more than 1%, with Polish GDP growth predicted at just above zero, and Czechia, Hungary, Latvia and Lithuania clustered around zero. Estonia is forecast to have a second year of recession.
