Worsening geopolitical and financial conditions have dented growth momentum in Central and Eastern Europe. A sharp growth slowdown is already underway as persistently high inflation is eroding consumer purchasing power, financial conditions tighten, and the impetus from reopening economies and pent-up demand fades, S&P Global Ratings noted in the new report "Central and Eastern Europe: Growth Freezes, Risks Mount".

The agency's downside scenario provides that most CEE-6 economies--Bulgaria, Czech Republic, Hungary, Poland, Romania, and Slovakia--would be in recession in 2023 as it assumes a complete cut-off of gas supplies from Russia, subsequent economic recession in Germany, and tighter global financing conditions, that would knock off 2.1 pp from the baseline 2023 forecast for regional 1.4% GDP growth.

Key Takeaways also include the following:

o The scale of the shock triggered by the Russia-Ukraine war could lead to revision of some of the baseline macroeconomic and rating assumptions for CEE-6 sovereigns, which would weigh on the view of sovereign credit quality.

o The balance of risks for CEE utilities is on the downside, although still manageable. CEE utilities are currently exposed to downside risks stemming from the combination of physical supply and liquidity uncertainties, high and volatile prices, and government responses to protect affordability. These credit negatives are only partly mitigated by industry and government measures and currently higher earnings for some issuers stemming from high power prices.

o While the outlook for the year ahead is challenging, structural factors remain supportive for growth in the CEE region, in the agency's view. The analysts expect convergence with Western European income levels to continue.

Read the full release here.