Economic environment
Even though economic growth in the eurozone was consistently good in the first two quarters of 2022 – in the 2nd quarter of 2022, growth of 0.8% was reported compared with the previous year – the 3rd quarter was the first time that weakness began to show, characterised by growth of just 0.3% compared with the previous quarter.
As participant in the market, the business activities of VIG are influenced by the development of macroeconomic factors, including the rate of unemployment, GDP and inflation. The consequences of the Russian attack on Ukraine, massive energy price increases and the ongoing impacts on supply chains are the drivers behind increased inflation, which was expected to have reached its peak towards the end of 2022. As a result, in December 2022 prices in the eurozone rose by just 9.2% year on year, which is significantly lower than the 10.1% rate of increase from the previous month. Additionally, 2022 saw a significant rise in inflation in almost all markets in which the VIG Insurance Group operates.
In Austria, the recovery in the tourism sector and positive trends from public administration and the building sector contributed to GDP growth, especially in the first three quarters of 2022 (Q1: +9.2%; Q2: +6.1%; Q3: +1.7%). Despite a positive contribution from private consumption, weak exports and slightly lower investments led to a weakening of the growth dynamic. Influenced by the electricity price cap in place since December 2022 and generally lower strain on energy prices, inflation fell in Austria from its 2022 peak of 11.6% in October to 10.5%.
In Central and Eastern Europe (CEE), low export demand and weak sentiment indicators suggest a contraction of industrial production, which is at a level not seen since the recession of 2012. In such an environment, it is no big surprise that there already was a technical recession in the 2nd half of 2022 in Hungary and in the Czech Republic and that there was negative performance in Poland in the 4th quarter of 2022.
Private consumption – at times driven by huge price rate increases – also contributed to a generally weak performance. But in the CEE region, too, inflation rates ought to have reached their peak, or should soon be about to. It is expected that Hungary, which only recently removed fuel price regulation, is yet to see price rises reach their peak; this is anticipated later in the course of 2023. In total, the analysts at Erste Group calculate an average inflation rate of 13.9% for the CEE region for 2022, which is a considerable increase compared to 2021 (4.5%).
In spite of the somewhat weaker environment in all of the economic areas mentioned above, employment rates remain at solid levels. Erste Group expects unemployment to reach 4.8% in Austria in 2022 (2021: 6.2%). In the CEE region, the unemployment rates is expected to fall from 5.4% in 2021 to 4.8% in 2022.