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Effects of the Eurozone Crisis Still Being Felt in Eastern Europe

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As the worst of the eurozone debt crisis is over, households in Eastern Europe continue to feel the after-effects of the crisis. Almost all Eastern European economies experienced slowing real GDP growth in 2012, even Poland which was considered the region’s bright spot, with further deceleration expected in 2013. Eurozone uncertainty still presents challenges but consumer goods companies can remain profitable by targeting the right consumer groups and expanding private labels and budget goods.

Annual Real Growth in GDP and Household Disposable Income in Eastern Europe: 2007-2013

Source: Euromonitor International from national statistics/Eurostat/OECD/UN/International Monetary Fund (IMF), World Economic Outlook (WEO)

Note:  Note: Data for 2013 are forecasts.

  • The eurozone sovereign debt crisis – often referred to as the eurozone crisis started in Greece in late 2009 and has been spreading to other eurozone countries, with the economies of Spain, Portugal, Ireland and Italy particularly affected;
  • By the summer of 2013, the worst of the eurozone crisis was over. In the Q2 2013, the Eurozone economy grew by 0.3% in real terms over the previous quarter. In particular, the Greek economy shrank by 3.8% year-on-year in Q2 2013, marking the smallest annual decline since Q3 2010. Meanwhile, Greece is expected to see the biggest quarter-on-quarter increase in consumer confidence in Western Europe in Q3 2013;
  • Even as the worst of the Eurozone crisis is over, households in Eastern Europe continue to feel the after-effects of the crisis. In 2012, most Eastern European countries experienced falling real GDP growth. Even Poland which was considered the region's bright spot, saw its annual real GDP growth slow to 1.9% in 2012, from 4.5% in 2011.


The Eurozone crisis continues to impact Eastern European consumers, with the region’s consumer market and wider economy also feeling the knock-on effects:

  • As many banks across Eastern Europe are owned by Eurozone banks, the Eurozone crisis has forced Western European parent banks to reduce their exposure in Eastern Europe and withdraw liquidity from the region. Romania, Bulgaria and the Balkan countries are particularly hard hit because a number of Greek banks hold subsidiaries in these countries. Likewise, in Poland where banks avoided the worst of the 2008-2009 global financial crisis, most banks depend on their Western parent companies for the funds they use for lending;
  • This has resulted in a credit crunch in Eastern Europe, adversely affecting both consumers and private businesses in the region. Whilst consumer credit crunch can weigh on overall consumer spending, the squeeze on the amount of credit available to firms can affect their ability to expand and create new job opportunities. In 2012, the unemployment rate in Eastern Europe stood at 8.0%, below the 11.4% for the Eurozone in the same year, but above the 7.1% unemployment rate recorded in Eastern Europe in 2008;
  • Remittances inflows into Eastern Europe has also been declining, impacting disposable income growth. Greece, for example, is the main host country for Albanian migrant workers, with remittances from Greece representing about 4.0% of Albania’s total GDP. Between 2009 and 2012, remittances inflows into Albania fell by 21.5% in US$ terms, affecting the incomes of many households in the country;

Remittances Inflows and Trend in Remittances into Eastern Europe: 2007 – 2012

Source: Euromonitor International from World Bank, Migration and Remittances Statistics

  • Following the 2008-2009 global financial crisis, households in Eastern Europe have reduced their exposure to loans in foreign currencies, including the euro. However, the eurozone crisis has intensified the risk of exchange rate volatility that can adversely affect households servicing their existing foreign-dominated debts;
  • As a consequence, household annual disposable income in Eastern Europe as a whole is forecast to grow at 3.5% year-on-year in real terms in 2013, down from 3.9% in 2012. In 2013, annual real growth in consumer expenditure per household in Eastern Europe is also set to slow down to 3.0%, compared to 3.5% in 2012 and 3.9% in 2011.


  • In so far as Eastern Europe continues to rely on countries in the eurozone for its banking and financial sector, investment and remittances, companies and consumers in the region will continue to be exposed to risks and weaknesses in the eurozone economy. Annual real GDP growth in the eurozone is expected to remain negative, at -0.8% for the whole 2013, compared with -0.6% in 2012. As a consequence, Eastern Europe’s real GDP growth rate is also forecast to slow to 1.5% year-on-year in 2013, down from 2.0% in 2012;
  • The Banking Association for Central and Eastern Europe reported in 2013 that due to perceived lack of opportunity, non-performing debt and money laundering risk, many foreign banks are considering withdrawing altogether from the region. Such withdrawals can further squeeze credit, affecting consumer spending, businesses’ expansion plans, and the job market;
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