A year of crucial choicesAdjustment postponed in auspicious environment

  • We expect the EU-CEE economies to grow by around 2.6% in 2024 and 3.0% 2025, with the Western Balkans growing marginally faster. We expect GDP to grow by 3.2% in 2024 and 4.0% in 2025 in Turkey and by 2.8% in 2024 and 1.3% in 2025 in Russia.
  • Private consumption is likely to lead the growth rebound, helped by faster real wage growth, rising borrowing and government transfers. Public investment will be the second-largest growth driver, while net exports will drag on GDP dynamics this year.
  • We see budget deficits of less than 3% of GDP in 2024-25 in Bosnia-Herzegovina, Bulgaria, Croatia, Czechia and Serbia, with deficits of more than 5% in Hungary, Slovakia, Poland and Romania (all at risk of excessive deficit procedures), as well as Turkey.
  • We expect pro-EU parties to win more than two thirds of EU-CEE seats in the European Parliament, thereafter claiming more important positions in European institutions and NATO.
  • We see a trade-off between lower budget deficits and higher inflation in Poland, Romania and Turkey, where we expect inflation targets to be missed in 2024-25. In Hungary, this trade-off could be postponed beyond 2025.
  • We expect rate cuts this year in Czechia, Hungary, Romania, Serbia and Russia, although the pace of easing could slow in 2H24 and 2025 if currencies come under pressure. We expect the NBP and the CBRT to remain on hold this year, catching up in 2025.
  • 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.
  • Enlargement momentum is accelerating, with the Western Balkans likely to benefit if reforms are implemented. The accession process could also bode well for rating upgrades.
  • In our view, the main risks are 1. a test to NATO’s resilience following a lopsided peace in Ukraine, 2. more trade protectionism and lower risk appetite for EM assets if Donald Trump is elected US president, 3. low reform momentum after elections amid voter disengagement, 4. Bulgaria’s probable early elections postponing euro adoption to 2026 and 5. limited EU transfers to Hungary and Slovakia due to standoff with EU institutions.

CEE Quarterly (PDF)

Source: UniCredit Research - CEE Quarterly, 26 March 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.