CEE Quarterly: External weakness clouds the outlook, gradual recovery in external demand in 2025
- UniCredit economists expect the economies of EU-CEE1 to grow by around 2.3% in 2024 and 2.8% 2025, with the Western Balkans2 growing above 3%.
Private consumption will remain the biggest growth driver. UniCredit economists expect investment to contribute more to growth in 2025, especially if public investment picks up with the help of more EU funds, and a gradual recovery in external demand next year.
Labour markets have remained tight, supported by strong domestic demand, although some differentiation among sectors reflecting the varying impact of weak external demand can be observed. Wage growth is expected to continue to outpace inflation.
UniCredit economists expect to see significant fiscal consolidation efforts in Slovakia, Romania and Turkey in 2025 while any adjustment in Poland and Czechia will be small. Hungary will continue to lower its budget deficit. Fiscal risks are limited in all other CEE countries.
Disinflation may stall in 4Q24 but resume next year, which together with declining core market rates creates space for central banks in the region to cut rates. Fiscal risks and the divergence between goods and services inflation warrant a cautious approach. UniCredit economists expect the NBP and the CBRT to start to cut rates in 1H25, when the CNB may already reach its terminal rate. The NBH, NBR and NBS, on the other hand may continue cutting rates gradually as they are yet to reach the end of the cycle beyond 2025.
While risks of excessive FX weakening are muted because of improving external positions, exchange rates are expected to trend higher due to loose fiscal positions and a positive gap in the inflation outlook relative to the region’s main trading partners. The exception is EUR-CZK.
Strong EU-CEE representation in the new European Commission offers significant opportunities for these countries to shape the future of the European Union.
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1 EU-CEE refers to CEE countries that are members of the EU: Bulgaria, Croatia, Czechia, Hungary, Poland, Romania, Slovakia and Slovenia.
2 Western Balkans refers to Serbia and Bosnia and Herzegovina
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