Debt projections in CEE

On the radar

• Employment declined in Poland by -0.8% y/y in August, while wage growth was at 5.6% y/y.
• Retail sales in Poland grew by 3.8 % y/y, while money supply growth is set to be released today.
• In the afternoon, Hungarian central bank will announce interest rate decision (2 PM CET).

Economic developments

Following the Moody’s decision to downgrade Poland we take a closer look at the European Commission projections of gross public debt to GDP ratio under no-policy-change. Projections illustrate how debt would evolve in the absence of additional policy measures and should not be treated as forecast. The Debt Sustainability Monitor (DSM) projections of debt over a ten-year horizon incorporate assumptions on structural primary balances, growth, interest rates, inflation and ageing-related expenditure. We compare calculations of public debt in 2035 between DSM published in 2024 and in 2025. First of all, it is clear that the fiscal consolidation in Romania paid off in terms of improvement of expected public debt in 2035 (decline roughly by 15 percentage points between calculations from 2024 and 2025). Romania’s headline deficit fell from 9.3% of GDP in 2024 to 7.9% in 2025 and is expected to decline further, although debt is still rising in the near term and fiscal vulnerabilities remain significant. On the other hand, visible increases in projected debt occurred in Hungary, Poland and Slovenia and to lesser extent in Croatia, Czechia and Slovakia. In particular, under no-policy-change scenario, debt ratios would exceed 100% in Hungary, Poland and Slovakia in 10 years. Several CEE economies still have lower debt ratios than Western European economies, but persistent primary deficits, higher debt-servicing costs and ageing-related expenditure can progressively erode this advantage.

Market movements

Today, Hungarian central bank is expected to pause the short easing cycle that brought the interest rate down to 5.50% in Hungary. Increased geopolitical tensions and perspective of inflation target revision in coming months grant cautious approach. Hungarian central bank will also publish new inflation and growth projections. As far as Poland is concerned, after Friday's downgrade to A3, Moody's said that further rating pressure could come from post-election attempts to weaken domestic debt rules (the agency assumes compliance with debt stabilization at 70-75% of GDP). CEE currencies have stabilized with EURCZK and EURPLN declining slightly on Monday and EURHUF moving toward 361. Long-term yields have declined across the region. In Slovakia, debt agency ARDAL raised EUR 603 million in bond auction across 2028/2029/2033/2043 lines at average accepted yields of 3.34%, 3.56%, 3.90% and 4.54% respectively.

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