Economic Snapshot for Central & Eastern Europe

June 9, 2020

Central & Eastern Europe growth to lose traction in 2020

The regional economy will be hard hit by the health crisis this year. A marked increase in the jobless rate and weaker wage dynamics will hammer consumer spending, while investment activity will shrink due to vanishing foreign demand, businesses closures, disrupted supply chains and elevated uncertainty ahead. Possible flare-ups of the pandemic cloud the outlook.

CEE Monetary & Financial Sector News

Regional inflation slumped from 3.4% in March to 2.5% in April, on falling energy prices. This year, inflation is set to cool considerably from 2020 on the back of wider output gaps, lower global oil prices and subdued wage pressures. That said, disrupted supply chains, rising food prices and extremely loose fiscal and monetary policy stances could deliver upside surprises.

At its latest meeting, the National Bank of Poland cut rates to a new all-time low and reaffirmed its quantitative easing program. Meanwhile, the Central Bank of Romania slashed rates and confirmed liquidity measures, while Hungary’s Central Bank stayed put on rising optimism about the recovery. This year, policy stances will remain firmly expansionary.

Over the last few weeks, most local currencies have gained considerable ground against the EUR. Investors’ risk appetite strengthened on vaccine hopes and as easing lockdown measures fueled expectations that the worst of the fallout from Covid-19 may have passed. Going forward, regional currencies should hover around current levels.