Central & Eastern Europe Economic Forecast

Economic Snapshot for Central & Eastern Europe

September 4, 2019

Central & Eastern Europe growth to decelerate in 2019

While regional growth will decelerate this year on supply-side constraints and in tandem with the European slowdown, resilient domestic demand will buttress the overall economy. Co-financed investment projects and low interest rates will support investment activity, while tight labor markets and fast wage increases will spur consumer spending.

CEE Monetary & Financial Sector News

Regional inflation edged up to 3.0% in July (June: 2.8%), due to faster price increases for food and recreation. Inflation accelerated in most economies except for Hungary and Estonia. Healthy growth in domestic demand and rising wages will sustain inflation going forward, although intense international competition will cap overall price pressures.

The Czech Republic, Hungary and Romania stood pat at their August meetings, amid softening growth at home, intensifying global trade tensions and the ECB’s expected monetary policy loosening. Going forward, rates are seen broadly stable, owing to the ECB’s dovish stance and a challenging external backdrop. Upside inflation surprises could lead to some rate hikes.

Most CEE currencies lost ground against the euro in recent weeks, owing to softening regional growth; concerns linked to intensifying global protectionism and the increased possibility of a hard Brexit; and the recent collapse of the Romanian government. Nevertheless, solid domestic economies will sustain CEE currencies ahead.

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