How CEE will develop in 2024?

In 2024 CEE growth should recover as domestic demand gains strength. Private consumption is expected to recover. Real wage growth, falling inflation and monetary easing should support higher household spending. Investment growth will be driven by the ongoing flow of EU funds, as we see Recovery and Resilience Funds cushioning the switch between budgeting periods that is usually associated with lower investment activity. Especially, the REPowerEU chapter increases the available funds substantially. The downward risks to our forecats prevail, however. On the domestic side, still high costs of living, high uncertainty and restocking of depleted savings may slow the pace of recovery. As far as external environemnt is concerned, the Eurozone economies have been stagnating. For CEE, weak expectations about the performance of the German economy are particularly worrying.

Disinflation has been pretty solid over the course of 2023, strongly supported by external factors. In 2024, the pace of disinflation is expected to slow visibly, amid the fading effect of external factors (oil and food prices). The tight labor market is likely to keep demand pressure elevated, as nominal wage growth (including a double-digit increase in minimum wages) is pro-inflationary by nature. Inflation is expected to remain well above the inflation target throughout the whole of 2024 in most of CEE countries.

The dynamic decline of inflation justified monetary easing in Hungary and Poland. While Hungary continues with monetary easing, Poland is likely to take a pause. The Czech central bank remains cautious, despite expectations for inflation to fall toward the target the soonest in CEE. We expect monetary easing to begin in December or 1Q24 at the latest. Romania and Serbia should begin with monetary easing only in the course of 2024.

Apart from Croatia, all other countries should proceed with gradual fiscal consolidation. Many CEE countries have among highest deficits in Europe. In spring 2024, Excessive Deficit Procedure will be reinstated, threatening countries that maintain loose fiscal stance.

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