Alen Kovač: The Prospects for Recovery Are Increasingly Taking the Shape of a V

The prospects for economic recovery are increasingly taking the shape of a V, and considering the strong GDP growth from the second quarter, as well as improved prospects for the second half of 2021, Erste Bank currently sees the growth rate for 2021 at around 7 percent.

The DZS published its first estimate on Friday, indicating that the gross domestic product (GDP) in the past quarter increased by 16.1 percent compared to the same period last year.

The previously record GDP growth of 7.2 percent was recorded in the second quarter of 1997. The growth in the second quarter on a year-on-year basis is the first after four consecutive quarters of decline due to the corona crisis.

– After the recovery in the second quarter was extremely strong, in line with expectations, the prospects for recovery in the second half of 2021 remain encouraging. The obvious reason for this is tourism, whose performance in the third quarter has indeed been very strong and exceeded expectations with the number of overnight stays at levels above 80 and 90 percent compared to pre-COVID-19 levels in July and so far in August, which gives an additional boost to GDP growth for the entire year of 2021 – says the chief economist of Erste Bank, Alen Kovač, in a comment on the latest DZS announcement.

Reflecting on private consumption, which jumped 18.4 percent in the second quarter compared to the same period last year, Kovač notes that data from tax authorities still indicate a growth trend above pre-pandemic levels, with the recovery of the labor market and strong consumer sentiment continuing to support the prospects for the second half of 2021.

DZS data also show that gross investments in fixed capital increased in the past quarter by 18.3 percent year-on-year, significantly faster than in the previous quarter, when growth was 4.6 percent. Government consumption also increased by 4 percent year-on-year.

Investments, supported by funds from EU sources and favorable trends in the construction sector, should maintain solid momentum in the future, Kovač assesses.

Additionally, he adds, although likely losing some momentum from the first half of the year, exports of goods, supported by the prospects for recovery in key export markets, should continue to alleviate rising pressures on the import side. Exports of goods and services increased in the second quarter by 40.9 percent year-on-year.

– The prospects for recovery are increasingly taking the shape of a V, therefore considering the strong GDP growth from the second quarter, as well as improved prospects for the second half of 2021, we currently see the growth rate for 2021 at around 7 percent. Negative risks are still predominantly associated with potential adverse trends of the pandemic and eventual negative effects on economic activity – concludes Kovač.