CEE: Military expenditure grows steeply

Erste Bank Research Team Erste Bank

On the radar

Producer prices in Romania went down by 2.4% m/m and up by 3.3% y/y in March.
April’s inflation in Czechia was published at 1.8% y/y and 0.1% m/m.
Tomorrow in the morning Hungary and Slovakia will publish retail sales while Czechia industrial output growth.

Economic developments

According to the latest release of Stockholm International Peace Research Institute (SIPRI) from the end of April 2025, world military expenditure reached $2718 billion in 2024, an increase of 9.4 per cent in real terms from 2023 and the steepest year-on-year rise since at least the end of the cold war. Military spending increased in all world regions, with particularly rapid growth in both Europe and the Middle East. Military expenditure in real terms from 2023 grew particularly dynamic in the CEE region as well. Over last two years, the average annual growth in CEE8 was above 20%. In nominal terms, the military expenditure doubled since 2022 that is the outbreak of the war in Ukraine. Poland is the front-runner in terms of military spending, but in 2024 growth dynamics was double-digit in Czechia, Romania, Serbia or Slovakia.

Market movements

Romania’s prime minister announced his resignation after the outcome of the first round of presidential election on May 4. There is a split in coalition whom to support in the second round as Social Democrats withheld support from any candidate. The Romanian long-term yields increase visibly on Monday (roughly 30 basis points) reflecting mounting political risks and are close to 7.8% currently. Otherwise, there was little movement on the bond market in other countries. The Hungarian forint and the Polish zloty strengthened against euro at the beginning of the week. Although the Czech koruna weakened marginally the EURCZK remains below 25 level. In Hungary, the budget council warns that government’s expectations regarding economic performance of Hungary in 2025 and 2026 are too optimistic. We have already lowered our forecast to 1.7% in 2025 after the tariffs announcement and consider further downward revision after flash 1Q25 GDP data.

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 deflates to fresh lows, targets 1.1600

The selling pressure on EUR/USD now gathers extra pace, prompting the pair to hit fresh multi-week lows in the 1.1625-1.1620 band on Friday. The continuation of the downward bias comes in response to further gains in the US Dollar as market participants continue to assess the mixed release of US Nonfarm Payrolls in December.

GBP/USD breaks below 1.3400, challenges the 200-day SMA

GBP/USD remains under heavy fire and retreats for the fourth consecutive day on Friday. Indeed, Cable suffers the strong performance of the Greenback, intensified post-mixed NFP, and trades at shouting distance from its critical 200-day SMA near 1.3380.

Gold flirts with yearly tops around $4,500

Gold keeps its positive bias on Friday, adding to Thursday’s advance and challenging yearly highs in the $4,500 region per troy ounce. The risk-off sentiment favours the yellow metal despite the firmer tone in the Greenback and rising US Treasury yields.