Eastern European economies battered by high energy costs

The European Bank for Reconstruction and Development (EBRD) has warned that Russia’s attack on Ukraine will slow growth across Eastern Europe this year, causing energy prices, borrowing costs and inflation to remain elevated while deterring foreign investment. 

Hungary and Latvia are expected to see especially deep contractions, while Poland’s growth is forecast to be only 1 percentage point, down from 4.8% in 2022. Energy-intensive factories across the region faced reduced competitiveness as input costs remain elevated, leading the EBRD to expect markedly lower foreign direct investment in 2023.

The multilateral lender has also projected that the negative effects on investment will gradually dissipate if the war turns into a prolonged low-intensity conflict. Meanwhile, the bank raised its growth projections for countries in Central Asia due to higher energy prices and increased remittances from nationals working in Russia when labor is scarce.

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