Historic floods drag down economy in Central Europe

Now that small victory is under threat as the Czech Republic and Poland, the countries hardest hit by the floods, count the cost of the worst flooding to hit the region in at least two decades.

Based on estimates from local officials, infrastructure damage could total $10 billion in those two countries alone. Poland’s finance minister said $5.6 billion allocated from EU funds would cover some of the costs of flood recovery.

The Oder River in Wroclaw, Poland on September 19. Photo: Reuters

The economic fallout is adding to pressure on state finances in a region still reeling from the COVID-19 pandemic and soaring inflation following the Russia-Ukraine conflict in 2022.

Since the pandemic hit, when EU member states abandoned the bloc's requirement to keep annual deficits at 3% of gross domestic product, budget deficits in the region have ballooned to 9% of GDP in Romania and 7% in Poland and Hungary.

Inflation and elections in Poland, Hungary and Romania are further hampering deficit cuts. Higher military spending, inflation-linked pension spending and rising debt servicing costs are also straining the budget.

The Czech Finance Ministry said on September 19 that it would allocate 30 billion crowns ($1.3 billion), or 0.4% of GDP, to flood damage in a revised 2024 budget.

This could push the Czech deficit closer to the EU-mandated 3%, up from the original target of 2.5%, with next year's deficit now also forecast to be higher than previously planned.

While central Europe appears to be better prepared than in the past to deal with floods, it is still dealing with incidents and their economic impact more frequently, said Steffen Dyck, senior vice president at Moody's Ratings.

The sudden pressure on the Czech Republic's finances highlights the scale of the challenge facing the rest of the EU's eastern member states, which are still grappling with larger deficits, ranging from nearly 7% in Romania to more than 5% in Poland and Hungary.

Ngoc Anh (according to Reuters)

Source: https://www.congluan.vn/lu-lut-lich-su-keo-tut-nen-kinh-te-o-trung-au-post313309.html