CEE Quarterly: Domestic demand powers growth, worries central banks
- UniCredit economists foresee the economies in EU-CEE1 to grow by around 2.7 percent in 2024
- In 2025, 2.9 percent growth is expected for EU-CEE and around 3 percent for the Western Balkans
“Private consumption will remain the biggest growth driver, with public investment contributing this year and capex expected to rebound in 2025. Net exports will not boost economic growth until next year.”, comments Dan Bucsa in the latest economic research CEE Quarterly. According to him, CEE households will see their purchasing power continue to rise in 2H24 and 2025.
Countries like Hungary, Slovakia, Poland, Romania and Turkey will have to reduce their budget deficits, but they will remain far from the 3%-of-GDP threshold. Fiscal risks are limited in all other CEE countries. “In the absence of fiscal tightening, we see risks of sovereign downgrades in Hungary, Romania and Slovakia.”, says the report.
The economists observe that Central banks have turned more cautious in 2024 due to persistent inflationary pressure amid loose fiscal policy and strong consumer demand. However, markets may now be underestimating the number of rate cuts in 2025, when we see policy rates approaching terminal rates in this cycle.
The expectations are that the Hungarian presidency of the Council of the EU will prioritize EU expansion to the Western Balkans, reducing migration to the EU and improving competitiveness. The Western Balkans have a historic opportunity to reform, receive EU funding and, in the longer term, access the European customs union and receive sovereign upgrades. So far, reform momentum remains weak, and UniCredit economists see Montenegro as the frontrunner in negotiations.
Among the main risks in the macro scenario are the stalling energy transition in Central Europe, political infighting delaying euro adoption in Bulgaria, and weak reform appetite ahead of the demographic cliff at the end of the decade.
Enquiries:
UniCredit Bank Austria Media Relations
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E-Mail: matthias.raftl@unicreditgroup.at
1 Bulgaria, Croatia, Czechia, Hungary, Poland, Romania, Slovakia and Slovenia