As Russia's invasion of Ukraine is sending shock waves across Europe, Southeast Europe is bracing up to bear the brunt of the economic, financial and security consequences. The economies in the region are heavily reliant on Russian gas and for most of them Russia is a major trading partner and investor. For tourism-dependent economies like Bulgaria, Croatia and Montenegro, it is also a key feeder market. The indirect consequences of higher energy and raw material prices and supply chain disruptions are expected to impact production, further fuel inflation and slow down recovery. The onset of the Russian assault sent the regional stocks into a sharp fall, flights to and from Russia were discontinued, Moldova and Serbia suspended wheat exports, and Russia's Sberbank exited Southeast Europe. Thousands of refugees started pouring into Romania and Moldova. NATO said that it is deploying additional defensive land and air forces on its eastern flank.

As the fourth wave of Covid-19 cases in Southeast Europe subsides, the region's economic recovery continues, though at a slower pace than in 2021. Continuing fiscal support and returning consumer and business confidence are boosting growth, though tourism - a key industry for many countries in the region - remains at below-crisis levels. On the downside, accelerating inflation, under the strong impact of supply-side shocks and soaring energy prices, and shrunken consumption are exerting pressure on the economies.

Following a contraction in 2020 amid Covid-related uncertainties, Southeast Europe's mergers and acquisitions (M&A) market began to recover in 2021, boosted by positive signals from the economy, ample liquidity and cheap financing. "There is money in the market. Both strategic and financial investors have substantial capital resources, financing is cheap due to still very low interest rates and the time is right for companies that want to expand, consolidate or diversify and transform their business by acquiring resources and new technologies," a market analyst said. Romania, the region's biggest market, the value of M&A deals is estimated at $6.2 billion in 2021, up by 32%, by global consultancy Ernst&Young and expected to rise further in 2022. Technology, real estate, consumer products and retail were the most active sectors in the country in 2021.

As electricity prices across Southeast Europe are surging, governments in the region are seeking ways to cushion the blow for the business and for households. Serbia's government recommended to state-owned power utility Elektroprivreda Srbije to cap electricity prices for industrial consumers at 75 euro per MWh until the end of June. In Romania the government limited the price of electricity at 0.68 lei per kWh and increased the volume of consumption to which subsidised retail prices apply to 500 kW per month from 300 kW. Bulgaria's government said it will support local businesses hit by the energy crisis by up to 2 bln levs (1 bln euro) between October and March. In December, Bulgaria's parliament decided to freeze the prices of electricity, central heating and water for households at their current levels until the end of March.

In 2013 Chinese president Xi Jinping unveiled the One Belt and One Road Initiative - a development strategy under which China plans to invest hundreds of billions of euro in other countries in Asia and in Europe in a bid to strengthen its role in global affairs. The initiative, which later became populat as the Belt and Road Initiative (BRI) focuses on projects in transport infrastructure, energy, iron and steel. Countries in SEE fall within the strategy's scope, with Serbia attracting the most generous share of Chinese investments.