Raiffeisen Research – your bridge to CEE economies

Raiffeisen Research consists of a department in RBI’s head office in Vienna and 12 economics teams located in CEE countries. All of this constitutes a community of market research analysts who cooperate with each other on a daily basis exchange views, experience and combine a variety of backgrounds in order to support internal and external customers of RBI.

What started years ago from one conference call a week, the evolution of office tools now allows us to easily communicate each day. We also meet every six months in person which is always a great experience both professionally but also personally. In December 2023 we celebrated our 50th meeting, which shows how far back the CEE research in RBI goes. 

On such occasions we also go further than economics in our exchanges. One of the recent outcomes of our in-person events was a CEE music playlist based on recommendations from all CEE countries. 

In an economic field, working in a cross-country environment allows us to expand our analyses and learn how other countries in the region deal with similar challenges or opportunities.  

The perfect example of this was the pandemic. The fact that we had teams of economists in almost each network bank made it possible to closely track what measures are used to contain the spread of the pandemic from the first day of lockdowns, and then what government measures are used to limit the hit to the economy. We tracked and exchanged statistics every day when the pandemic started, then moving to weekly and monthly coverage until we finally could remove Covid-19 from our focus point.

What was crucial here was that already from the beginning of this unprecedented shock to the global economy, our research community exchanged information which helped us form expectations about the scale of the hit to the regions’ economy. We were able to check and compare what the impact of various measures used was in each country. For our clients (both internal and external) this meant they did not need to wait until a more structured dataset was set up by other providers (like a very good IMF database that was launched later). 

Similarly, the benefits of being spread across the region and being able to exchange information came with the next shock – war in Ukraine. In our first discussions about possible extension of sanctions to the energy sector it became clear that some countries are less vulnerable as they are not so dependent on imports (which was a less obvious impact channel than the widely expected hit to the manufacturing sector). Indeed, less energy import dependent countries in SEE, like Albania and Romania, did much better after the war started, compared to import dependent Czechia or Slovakia.

Beyond common shocks, being a “research bridge to CEE” allows us to use learnings from one country in our coverage to form expectations about another. This was the case with the 2023 euro adoption in Croatia where we could analyze our Slovakian colleagues’ euro adoption experience. 

Another example is the current big topic and opportunity for the CEE region: EU enlargement. As we are about to celebrate the 20th anniversary of the EU accession of CE countries this year, this provides great learning material for the challenges and opportunities ahead for the Western Balkans and Ukraine. 
While of course this involves the specific situations in both those regions, some general conclusions still can be drawn, like the benefits of free flow of goods and services and potential pitfalls (e.g. the path to a more balanced relation with key trade partners, the risks and limits of relying on the competitive advantage in the form of cheap labor or the relatively low position in the supply chain with CE countries being often more an assembly line rather than an industry innovator).

The CEE region provides a variety of business opportunities and diversified economic conditions especially now when the economic picture is drastically altered by ongoing digital and energy transitions. And so Central Europe tries to grapple with the recent energy crises and dampened competitiveness while in a positive scenario this should accelerate the shift toward renewables. 

We also track the changes in the automotive sector – key for CE – as the electronic vehicle industry grows with a new specialization: electric batteries production, being already well developed in Hungary and Poland, as well as on the rise in Slovakia. In terms of renewable energy, SEE, and countries like Albania in particular, are an interesting opportunity with the developed hydropower sector and high potential in solar or wind.

While these long term topics are on our agenda, the usual working day focuses rather on the more regular and current economic developments like of GDP growth, inflation, and interest rate outlook. We are now past the slowdown that hit all of Europe and Germany in particular, which additionally dampened growth in Central Europe. Southeastern Europe was hit to a smaller extent amid the ongoing rise in tourism and a lower hit to consumption with Croatia and Romania being the leaders of growth. 

As to inflation and interest rates, the latest episodes of historically high inflation has been particularly pronounced in Central Europe, hence the early response via interest rate hikes (which started in 2021 already vs 2022 cycles in EA, USA or SEE). Moreover, wage pressures and labor shortages have been adding to upside risks to inflation even before the pandemic and the war in Ukraine, leading to much faster and higher CPI rates here (most extreme example being over 25% inflation in Hungary in early 2023 vs EA peak close to 10%). 

More importantly, even though inflation is returning closer to central bank targets, the so called “tight” labor market conditions are still observed and pose upside risks to price developments. This in turn means there is no way back yet to the pre-pandemic levels of interest rates. 

It is also worth mentioning however that while still being part of emerging markets, the countries of CEE that are well-integrated in the EU saw much more stable FX rates in the recent shock periods compared to the financial crisis. While to some extent this is due to different policy responses to those crises, it is also a proof that the region has become much less vulnerable and converged more towards EU. 

There is a wide variety of topics to cover when tracking CEE economies, and we are happy to support our customers in identifying and understanding them.