The war in Ukraine will affect the three tourism ‘clusters’ in CEE very differently

The European Commission’s Winter 2022 Economic Forecast was only published a month ago, but rarely will a piece of economic analysis have gone out of date so quickly. At first sight, it looked quite positive for the Central & Eastern European member states. For example, looking at the V4 (the Czech Republic, Hungary, Poland and Slovakia) specifically, the Commission forecast that GDP growth would exceed the EU average – both this year and next:

The war in Ukraine has, of course, completely upended the basis of these forecasts. As well as the direct impacts of the refugee crisis and the strong trading ties that some CEE countries have with Russia, the biggest economic concern now is inflationary pressure driven by sharply rising energy prices. This is a particular challenge in CEE both because a lot of countries in the region are heavily dependent on Russian energy, and because most of its economies are built on energy-intensive manufacturing.

But the war in Ukraine will have serious economic impacts in multiple other areas too. One – which may not be a top priority in the short-term but matters nonetheless – is the damage it will do to tourism, an industry which had slowly been starting to recover from the Covid pandemic.

Assessing the likely effects of the war on tourism requires an understanding of the contrasts between the 11 EU member states in CEE. It’s a slight over-simplification, but it’s helpful to split the region into three ‘clusters’ when it comes to tourism: The Baltics (Lithuania, Latvia, Estonia), South East Europe (Croatia & Slovenia) and then the rest of CEE (Poland, Hungary, Czech Republic, Slovakia, Romania and Bulgaria).

There are two main reasons that it makes sense to split the region in this way: first, because the countries depend on foreign tourism to differing degrees, and second, because when the war in Ukraine broke out, their tourism industries were at different stages of recovery from the Covid pandemic.

In terms of the dependence on foreign tourism, the three clusters are not completely distinct from one another, but South East Europe is the most dependent on foreign tourism. Estonia and Latvia also rely heavily on visitors from overseas. Bulgaria is the only comparable country in the CEE cluster:

It’s fair to assume that the war in Ukraine will deter foreign tourists from travelling to countries in close proximity to the fighting. Croatia and Slovenia are obviously not in this category, which suggests that the tourism industries in Estonia, Latvia and Bulgaria are the most exposed to the impact of the war.

This is a particular blow to the Baltic States because tourism in that cluster was starting to rebound from Covid more quickly that the ‘rest of CEE’ group (albeit not as fast as South East Europe):

Needless to say, events are moving very fast and no one knows how the war in Ukraine will play out. Particularly for the countries bordering Ukraine, it’s also important to repeat that, even with spring approaching, this will not exactly be front of mind for most senior policy-makers right now. However, of the EU member states in CEE, it is tourism in the Baltic States that looks likely to be most affected by the war.