CEE Outlook | What’s Up CEE | 2025: Entering era of protectionism and isolation
CEE Macro Outlook , 9. Dez.
It appears that CEE countries have shifted to a lower gear due to various accumulated risk factors causing sluggishness in their economies. Risks and uncertainties are mounting and holding back the recovery, as the world awaits President Trump laying his cards on the table regarding tariffs. Slovakia and Hungary seem to be most impacted by US demand, especially when it comes to exporting vehicles and automotive parts to the US. However, the biggest negative impact is expected in 2026 only. In 2025, we see GDP growth accelerating in all CEE countries, except Croatia and Slovakia. Croatia might experience a slight cooling off while Slovakia should maintain a similar pace of growth. Serbia is the clear outperformer due to strong domestic demand and the implementation of "Leap into the Future - Serbia EXPO 2027" development plan. On average, 2025 GDP growth should be roughly one percentage point higher compared to 2024. Private consumption and the expected acceleration of investment are the primary growth drivers.
Inflation has been gradually falling across the region, and the end-of-year 'hiccup' should pass by 2025. We should expect a more permanent disinflation process after the base effects causing recent inflation increases fade out, except for Slovakia. Due to higher indirect taxes and energy prices, we may see inflation rise to above 4% in 2025. Unfortunately, core inflation has been elevated and is above the headline figures, mostly because services inflation has been high after the inflation shock. This issue is related to dynamic wage growth in the private and public sectors. Weak economic growth favors monetary easing, and all CEE countries should see more interest rate cuts.
Fiscal consolidation seems inevitable in some CEE countries. Czechia is committed to further reducing the budget deficit, while Romania and Slovakia face the most significant fiscal consolidation challenges. On the other hand, Poland intends to retain fiscal spending levels despite the substantial growth in defense expenditures.
Long-term yields have risen throughout 2024 due to global factors, such as the repricing of the size of monetary easing on the core markets. Recently, local factors became more critical in Romania, resulting in political instability, which caused a sell-off in November and raised 10Y yields to as high as 7.3%. In 2025, we expect the long end of the curve to shift downward due to further monetary easing. On the FX market, the Hungarian forint has noticeably weakened since the beginning of the year and we expect EURHUF to remain elevated.
Inflation has been gradually falling across the region, and the end-of-year 'hiccup' should pass by 2025. We should expect a more permanent disinflation process after the base effects causing recent inflation increases fade out, except for Slovakia. Due to higher indirect taxes and energy prices, we may see inflation rise to above 4% in 2025. Unfortunately, core inflation has been elevated and is above the headline figures, mostly because services inflation has been high after the inflation shock. This issue is related to dynamic wage growth in the private and public sectors. Weak economic growth favors monetary easing, and all CEE countries should see more interest rate cuts.
Fiscal consolidation seems inevitable in some CEE countries. Czechia is committed to further reducing the budget deficit, while Romania and Slovakia face the most significant fiscal consolidation challenges. On the other hand, Poland intends to retain fiscal spending levels despite the substantial growth in defense expenditures.
Long-term yields have risen throughout 2024 due to global factors, such as the repricing of the size of monetary easing on the core markets. Recently, local factors became more critical in Romania, resulting in political instability, which caused a sell-off in November and raised 10Y yields to as high as 7.3%. In 2025, we expect the long end of the curve to shift downward due to further monetary easing. On the FX market, the Hungarian forint has noticeably weakened since the beginning of the year and we expect EURHUF to remain elevated.