Outlook for the CEE countries – Second wave, new lockdown and risks

Danske Research Team Danske Bank A/S

The second COVID-19 wave is much worse (especially Czech Rep.) than the first (unlike in the Nordic countries) with higher numbers of deaths.

Authorities have been slower to react and impose lockdowns this time.

The new lockdowns will hurt primarily the service sector while external demand is supporting the manufacturing sectors.

The CEE economies will see a solid recovery in 2021 after the recession in 2020, supported by fiscal expansion, but the new COVID-19 wave creates downside risks.

The crisis is relieving pressures in the labour market.

However, inflation is surprisingly stubborn, but central banks are more focused on keeping economies afloat.

As a result, interest rates will remain low (and highly negative in real terms) until at least end-2021.

CEE FX has been hurt by the surge in virus cases, expectations of loose monetary policy and geopolitical risks relating to Russia.

We expect some recovery in the currencies but not until the virus is under control again and global risk sentiment is stronger, hopefully on the back of the US electi

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Danske Research Team

Danske Bank A/S

Research is part of Danske Bank Markets and operate as Danske Bank's research department. The department monitors financial markets and economic trends of relevance to Danske Bank Markets and its clients.

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