EME Macro/Strategy: BoP impacts of the energy crisis, CEE focus

The mild winter of 2022 was a key factor in enabling the EU to maintain comfortable levels of gas reserves and avoid rationing. According to our oil and gas analysts, Europe's gas supply for 2023-24E is not expected to face any issues. However, the next two years will require a focus on how countries will cope with the strain on their balance of payments if energy prices increase, compared to the period between 2014-20, towards a new normal of higher prices. As a result, the energy crisis will remain the primary factor contributing to a deterioration in the net-international investment position across our core CEE region. Looking ahead to 2024E, we have analysed two possible scenarios. If oil prices rise again, we anticipate an increased vulnerability in the region, as it could leave CEE economies, once exporters, in deep current account deficit territory. Although it appears broadly manageable, we warrant some extra caution concerning Hungary: the spat with EU institutions may hinder financial support – compulsory, if things turn the wrong way. However, the impact on inflation should be limited, and current trends in metals and mineral resources suggest that the EU can continue to upscale its green transition.