Central & Eastern Europe Economic Forecast

Economic Snapshot for Central & Eastern Europe

March 10, 2020

Central & Eastern Europe growth to lose traction in 2020

The regional economy should lose traction this year, although growth should remain healthy nonetheless. A weak Eurozone, intensifying supply-side constraints and the EU funding cycle will restrain investment and exports, while slower employment growth will limit consumer spending. Trade policy uncertainty and coronavirus spillovers pose the main downside risks.

CEE Monetary & Financial Sector News

Regional inflation came in at 3.8% in January, increasing from December’s 3.3% reading. Inflation is set to remain largely stable in 2020 compared to last year as lower energy prices should broadly offset upside price pressures stemming from solid wage growth and tightening capacity constraints. Covid-19 presents both upside and downside risks to inflation ahead.

Central banks in Hungary and Poland stood pat at their latest meetings, despite heightened downside risks related to the coronavirus outbreak. Cooling economic activity, a frail Eurozone economy and the ECB’s loose monetary policy stance drove their decisions. Rates should remain broadly unchanged ahead, barring upside inflation surprises or disruptions linked to coronavirus.

Over the last few weeks, local currencies lost ground against EUR, largely on market jitters over how the coronavirus could impact the global economy. The downside movement was partly cushioned by the Fed’s decision to cut rates, which reinforced hopes of a monetary response of central banks.

 

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