Consolidation expected next year in almost all of CEE

In the latest CEE Bond Report: CEE is not finished with monetary easing, rates will fall further we discuss fiscal plans and present forecasts for the bond market. In 2025, most of the CEE countries are expected to enter a consolidation path. Slovakia has already announced a large consolidation package with measures primarily focused on the revenue side. Romania will need to considerably curb its fiscal deficit, which is expected to be close to 8% of GDP in 2024, by tackling pre-election spending, inefficiencies in tax collection, and growing public debt. Both countries are under the Excessive Deficit Procedure (EDP). Hungary and Poland, also under the EDP, will need to consolidate as well. However, in Hungary, the 2026 election may delay fiscal tightening, and Poland appears to not be bound by new fiscal criteria or is betting on the carve-out of high military spending and investments financed by Recovery and Resilience Facility loans, which may inflate the deficit in contrast to grants. Finally, Croatia, Czechia, Serbia, and Slovenia will focus on keeping their deficits below 3% of GDP. Regarding bond market development, we expect the 10-year local currency government bond yields to decline by about 30-80 basis points (bp) in 2025, supported by further monetary easing. All CEE central banks should continue to reduce their still-high interest rates towards their neutral levels.