Central & Eastern Europe Economic Forecast

Economic Snapshot for Central & Eastern Europe

October 30, 2019

Central & Eastern Europe growth to decelerate in 2019

Regional growth is set to slow next year due to intensifying supply constraints and a challenging external environment. Moreover, a moderation in EU funding inflows and easing construction activity will weigh on fixed investment, while a possible reignition of global trade tensions further cloud the outlook.

CEE Monetary & Financial Sector News

Regional inflation came in at 2.6% in September, edging down from August’s 2.9 % reading. Inflation is seen remaining broadly stable in 2020, as solid wage growth and domestic capacity constraints will largely offset downside price pressures stemming from lower energy prices and softening domestic demand.

Central banks in Hungary, Poland and Romania stood pat at their October meetings. Despite strong core price pressures in Hungary, a weak external backdrop and the ECB’s ultraloose monetary policy stance led the banks’ decisions. Rates should remain broadly stable in 2020, although stronger-than-expected inflation could prompt interest rate hikes.

Most regional currencies gained ground against the euro in recent weeks. Waning expectations of a no-deal Brexit were the main factor behind the appreciation. Meanwhile, the fall of Romania’s government weighed on the leu. In 2020, CEE currencies are seen broadly stable against the euro, sustained by positive interest rate differentials.

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