A year of crucial choices

  • We expect the economies in EU-CEE to grow by around 3.0% in 2024 and 2025, with similar growth rates in the Western Balkans. We expect GDP to grow by 2.9% in 2024 and 4.0% in 2025 in Turkey and by 1.3% in 2024 and 2025 in Russia. 
  • Private consumption is likely to lead the growth rebound, helped by faster real wage growth, rising borrowing amid lower interest rates and a positive wealth effect from house prices. 
  • Investment could recover amid larger FDI and transfers from the RRF, but we expect capex and exports to contribute to growth from 2H24 at the earliest.
  • We see budget deficits below 3% of GDP in 2024-25 in Bosnia-Herzegovina, Bulgaria, Croatia, Czechia and Serbia, with negative fiscal impulses in most CEE countries. The fiscal adjustment will be slowed by a busy election schedule.
  • We expect pro-EU parties to win most of the EU-CEE seats in the European Parliament, with Poland leading a revived EU-CEE group that will argue for deeper economic and political integration in Europe. Hungary and Slovakia risk being marginalized. 
  • Other elections are unlikely to significantly change the political landscape, despite rising nationalism and disengagement. However, the 2024-25 elections will be the last ones before CEE politicians will be forced to tackle tougher demographic and economic challenges. 
  • We forecast inflation targets will be missed, except for those in Serbia and Russia in 2024-25, and Czechia in 2025.
  • We expect policy interest rates to be cut in all CEE countries, with real interest rates remaining slightly positive in 2024-25. A narrower carry and real appreciation amid cost increases might lead to currency depreciation.
  • Stable capital flows will cover C/A deficits in all CEE countries except Bosnia-Herzegovina, Romania and Turkey, where additional funding will come from international financial institutions, sovereign external borrowing and private borrowing from abroad, respectively.
  • In our view, the main decisions to be made in CEE are 1. Bulgaria’s euro adoption in 2025, rather than in 2026; 2. faster enlargement negotiations between the EU, the Western Balkans, Moldova and Ukraine; 3. Poland and Romania consolidating their geopolitical position on NATO’s Eastern flank; and 4. more support for Ukraine. In our opinion, the main risks are 1. a further populist tilt from mainstream parties, 2. rating downgrades, 3. weak foreign demand leading to recession, 4. Russian gains in Ukraine, 5. a return to political dominance over monetary policy in Turkey and 6. political instability.

→ CEE Quarterly (PDF)

Source: UniCredit Research - CEE Quarterly, 15 January 2024, Executive summary

1  EU-CEE refers to CEE countries that are members of the EU: Bulgaria, Croatia, Czechia, Hungary, Poland, Romania, Slovakia and Slovenia.