Is Western Balkan ready for the EU?

Erste Bank Research Team Erste Bank

On the radar

Unemployment rate in Croatia arrived at 4.7% in June, while in Slovakia it increased marginally to 5.0%.
Real wage growth in Croatia sustained dynamic pace of growth at 13.6% y/y in June.
Today, Poland will publish retail sales growth in June, while Slovenia real wage growth.

Economic developments

In our latest Special Report Western Balkan and the EU - who is ready? we discuss that integrating the Western Balkan countries into the European Union is both feasible and desirable. The EU enlargement of 2004 and the subsequent ones of Bulgaria and Romania in 2007 and Croatia in 2013 cooled off the aspirations within the Union for further rapid enlargement. Despite the fact that the Western Balkans has long been on the agenda for the European Union, the integration of the region is slow and burdensome. The longstanding disagreements and ethnic disputes continue to cast a shadow over the Western Balkans. As for economic convergence of Western Balkans countries, we see it as too slow and without EU accession this is unlikely to change. The flow of EU funds could underpin the catching up process of these economies. In the report we also estimate that SEE countries would benefit even more than CEE region had they joined the EU in 2004. As they had not, their real GDP per capita is much lower.

Market movements

Biden announced in a letter on Sunday that he was stepping aside as the Democratic nominee. Further, he endorsed Vice President Kamala Harris to take his place as Democratic nominee. Over the last week, the Czech koruna and the Hungarian forint strengthened against the euro. The Polish zloty, on the contrary, weakened. On Monday, EURCZK is at 25.22, EURHUF holds at 390 while EURPLN at 4.28. The long end of the curve has moved lower. In Poland the member of Monetary Policy Council Duda said that the central bank may start discussion about monetary easing in the second half of 2025 only. This week, Hungarian central bank holds a rate setting meeting and it will be seen if it takes a pause or continue with monetary easing given recent inflation development.

Download The Full CEE Macro Daily

Author

Erste Bank Research Team

Erste Bank

At Erste Group we greatly value transparency. Our Investor Relations team strives to provide comprehensive information with frequent updates to ensure that the details on these pages are always current.

EUR/USD: US Dollar to remain pressured until uncertainty fog dissipates

Unimpressive European Central Bank left monetary policy unchanged for the fifth consecutive meeting. The United States first-tier employment and inflation data is scheduled for the second week of February. EUR/USD battles to remain afloat above 1.1800, sellers moving to the sidelines.

GBP/USD reclaims 1.3600 and above

GBP/USD reverses two straight days of losses, surpassing the key 1.3600 yardstick on Friday. Cable’s rebound comes as the Greenback slips away from two-week highs in response to some profit-taking mood and speculation of Fed rate cuts. In addition, hawkish comments from the BoE’s Pill are also collaborating with the quid’s improvement.

Gold: Volatility persists in commodity space

After losing more than 8% to end the previous week, Gold remained under heavy selling pressure on Monday and dropped toward $4,400. Although XAU/USD staged a decisive rebound afterward, it failed to stabilize above $5,000. The US economic calendar will feature Nonfarm Payrolls and Consumer Price Index data for January, which could influence the market pricing of the Federal Reserve’s policy outlook and impact Gold’s performance.

Week ahead: US NFP and CPI data to shake Fed cut bets, Japan election looms

US NFP and CPI data awaited after Warsh’s nomination as Fed chief. Yen traders lock gaze on Sunday’s snap election. UK and Eurozone Q4 GDP data also on the agenda. China CPI and PPI could reveal more weakness in domestic demand.

Three scenarios for Japanese Yen ahead of snap election

The latest polls point to a dominant win for the ruling bloc at the upcoming Japanese snap election. The larger Sanae Takaichi’s mandate, the more investors fear faster implementation of tax cuts and spending plans.

XRP rally extends as modest ETF inflows support recovery

Ripple is accelerating its recovery, trading above $1.36 at the time of writing on Friday, as investors adjust their positions following a turbulent week in the broader crypto market. The remittance token is up over 21% from its intraday low of $1.12.