In the weeks following Russia's invasion of Ukraine, the major economies of Western Europe began to falter, while Eastern Europe continued to thrive thanks to rising wages and generous government handouts in some countries. However, this is no longer the case.
A sharp slowdown in retail sales and a drop in confidence indicators show that the cost-of-living crisis has gripped Europe's eastern flank, where citizens are becoming aware of the harsh reality as stubborn double-digit inflation eats into their incomes, food prices jump by 15 percent to 22 percent and energy costs soar.
While household consumption is falling, analysts are cutting GDP forecasts and the risk of a Europe-wide recession is looming.
Reuters writes that families have started to tighten their belts. Poles are shortening their vacations, Czechs are going to restaurants less, while some are looking for additional jobs, and in Hungary, where inflation in food prices alone was 22,1 percent annually in June, citizens are spending less on groceries and buying durable products as the drop in the value of the forint raises import prices. .
"One day I went to the bakery and a loaf of bread cost 550 forints (1,4 euros). It cost 650 (1,65 euros) every day. For God's sake!" lamented Lajoš, a 73-year-old from the northern town of Ostrogon on the Danube.
He told Reuters that rising food prices have eaten up part of his pension and that he will not be able to pay higher utility bills, which will rise after the government lifted price caps for higher-spending households last month. That's why this pensioner decided to make savings plans.
"I can heat with gas, but also with wood, so me and my wife can move into one room, heat the stove, put on warm sweaters and watch TV."
Across Hungary, retail sales growth slowed to an annual 4,5 percent in June from 10,9 percent in May, with sales of furniture and electronics falling 4,3 percent, suggesting the impact of huge tax breaks and government fiscal transfers Prime Minister Viktor Orban before the April elections has now disappeared.
Poland's retail sales growth also slowed to an annual 3,2 percent in June from 8,2 percent in May, while Czech adjusted retail sales, excluding cars and motorcycles, fell six percent year-on-year in June after falling 6,6 percent in May, data showed yesterday.
"Households reacted significantly to the rise in the cost of living and consumption started to slow down," said Peter Virovac, an analyst at ING Bank in Budapest.
According to yesterday's survey by the National Bank of Hungary, commercial banks expect the demand for loans to decline and lending conditions to be tightened in the second half.
Slowing domestic demand, rising interest rates, government spending cuts and rising business costs are expected to reduce economic growth in central Europe in the second half of this year and slow sharply in 2023, according to a Reuters analysis.
Citigroup said that Hungary's economy could grow by close to five percent in 2022, but that there are downside risks to its forecast of one percent for next year. The announcement indicates the risk that high energy prices will remain in effect for a long time, which would maintain double-digit inflation even in 2023. The Hungarian central bank still predicts growth of two to three percent for 2023, and will publish new forecasts in September.
The Polish economy should grow by 3,8 percent this year and 3,2 percent next year, according to government projections.
The Czech central bank, the first to halt its rate hike cycle on Thursday, is forecasting a recession at the start of the year as it expects the economy to shrink by 0,4 percent in the fourth quarter of 2022 and one percent in the first quarter of 2023.
"Our basic scenario includes a mild recession - a technical recession - we have two quarters in a row with a quarterly decline ... That would be a healthy recession, which also allows for a reduction in inflation," said Governor Aleš Mihl.
While a boom in the tourism sector is still expected during the summer, Poles have started to save on travel, according to data from the tourist site noclegi.pl.
"We see that this season is characterized by the shortening of trips, on average by one day, and the postponement of reservations until the last minute," said Natalija Javorska, an expert who works for noclegi.pl. Poles also started saving on food.
Data from various restaurant payment services, such as Sodek, show a drop in spending in restaurants in the Czech Republic as well. The latest survey by the STEM agency in June showed that 80 percent of Czech households are reducing or limiting their purchases due to the rapid increase in energy bills.
Consumer confidence in the Czech Republic fell to a new low in July, according to the statistics office's monthly survey, while a survey by the GKI research center showed that Hungary's consumer confidence index fell in July to its lowest level since April 2020 during the first wave of the Covid-19 pandemic.
Martin Hulovec, a 43-year-old Czech film producer, says he's not worried about his income right now, but he's less optimistic about the future.
"The hard times haven't come for me yet to deal with it right away ... but they will come," Hulovec told Reuters.
"I will certainly try to save more electricity ... I will definitely not buy new things, clothes or sports equipment for the children. Used ones can be found at half the price."
And he also plans to turn on the heating less when winter comes.
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