CEE outlook: Hang in there

In most of the CEE countries, growth at the beginning of 2026 was between 2% and 3%. In Croatia, Czechia and Poland, 1Q26 fell short of expectations. In these countries, changes to our 2026 forecasts are to the downside, but they are rather minor. Slovakia slightly underperformed its peers in the region with 1Q26 GDP growth marginally below 1%. Romania is the only country that contracted in 1Q26, due to ongoing fiscal consolidation. We expect Romania to be in recession this year. In Hungary and Serbia, 1Q26 GDP surprised to the upside, and we are finally able to revise our Hungarian growth forecast up from 1.4% to 1.7% in 2026. In Serbia we expect higher growth this year as well. In Slovenia, a stronger than expected entry into 2026 leaves room for upward revision of our current 1.7% FY26 GDP forecast to 2%. We see CEE8 average growth marginally above 2% in 2026, down from the 2.7% expected at the beginning of the year. The full impact of the Middle East conflict will likely show up only in the following quarters. Risks are therefore tilted to the downside. All in all, we seem to be entering a low-growth, higher-inflation configuration, again. The good news is, however, that inflation in May surprised to the downside in several CEE countries, allowing central banks to wait and see in a more confident way. The Brent oil price at close to USD 90 per barrel remains inflationary. However, the commodity market stress is not as high or broad-based as in the previous energy shock. The central bank‘s wait and see policy stems from substantially weaker demand pressures due to less aggressive fiscal expansion and monetary easing.

Inflation will be higher compared to our expectations from the beginning of the year. We have seen headline inflation rising continuously over the last couple of months in all CEE countries. Despite government interventions in several countries in the region, headline inflation climbed. The elevated price of oil (Brent close to USD 90 per barrel) leaves a mark on price development in the region. Cost pressure has been rising as well recently as producer price growth in the region reached the highest dynamics in three years. All in all, we see the CEE8 average at 3.9% in 2026. On the positive note, we have seen headline inflation easing in May in several CEE countries. We take into account this development and adjust our forecast accordingly (downward revision of average 2026 inflation in Hungary or Poland for example). Monetary policy will be affected by inflation development to a great extent. The monetary impulse we had expected at the beginning of the year is no longer assumed in our projections.

We expect stability of rates in all countries except Hungary. Hungary arrived at a place where FX market development opens space for some monetary easing, especially as inflation is also subdued, due to several price caps that are in place. First rate cut may arrive as soon as June. Until the Hungarian central bank has a clear view on the budget, they are unlikely to act further, however.

There are two stories currently on the FX market in the region. The first is the EURRON finding a new anchor close to 5.20; the other is Hungary. The EURHUF moved toward 350, the lowest level in several years. The change of government prompted the rally. The announced deal with Brussels and potential to unlock roughly EUR 16bn conditional on reforms and joining the European Prosecutor's Office is positive for the markets. Talks about Eurozone membership continue, although no formal steps have been taken. All in all, optimism is driving the Hungarian market.

Sovereign spread differentials between Hungary and three regional peers - Czechia, Poland, and Romania - reveal a pronounced and synchronized phase of spread compression across all three pairs from early 2026 onward. Resolution of the conflict in Iran should also support a lower level of long-term interest rates.

Download The Full CEE Outlook