CEE: Reality checks in – GDP revised down

The first quarter of 2025 proved to be quite disappointing in several CEE countries. We thus revise our 2025 GDP forecasts accordingly. The biggest revision of growth took place in Hungary, where we slashed our expectations for economic growth to 0.8% this year. GDP in Romania, Slovakia, Serbia and Slovenia was also revised down. Only Croatia, Czechia and Poland experienced solid expansion in the first quarter. Croatia and Poland track GDP growth dynamics close to 3% this year, while Czechia’s GDP should increase by almost 2%. The uncertainty around tariffs weigh on the growth prospects, however. Slovakia currently faces one of the highest effective tariff rates not only in the region, but in Europe. Further tariff increases, especially for the pharmaceutical sector, would hit other CEE countries to a great extent.

Regarding inflation, we have not made major changes. This year, the average inflation will be higher in most of the CEE countries. Only in Romania and Serbia will average inflation in 2025 be lowered compared to 2024. As far as monetary easing is concerned, Czechia is close to its terminal rate, while in other CEE countries, we still expect interest rate cuts in the second half of the year. While in Poland, we have become less confident about the size of monetary easing, in Romania, the fiscal consolidation plan will determine the monetary easing path. In Serbia, we downsized expectations for monetary easing compared to the beginning of the year (from a total 100 basis point cuts in 2025 to 75 basis points).

We pay a bit more attention to political developments in the region in this edition of CEE Macro Outlook. Romania did not choose far-right candidate Simion for president, while Poland voted for Nawrocki (the candidate of the current opposition) to become the next President. In Romania, there are ongoing negotiations regarding forming a new government, which will likely unite all pro-EU parties. A fiscal consolidation package to deal with the large budget deficit is the main topic of negotiation. Recent developments should help Romania avoid rating downgrade. In general, however, right-wing parties have gained a lot of support across the region. In Czechia, parliamentary elections will be held this autumn. ANO is leading in the polls and is likely to win the elections. Such a development (under the condition that collation is formed by anti-system parties) would mean another country aligning with policies currently represented by Hungary under Orban and Slovakia under Fico. Hungary, on the other hand, may be taking a turn in 2026 parliamentary elections. The Tisza party is on the rise and has overtaken Fidesz lately in the polls. The economic situation (inflation shock and stagnating economy) support the opposition of the current government.

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