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2018/12/12 / Erste Group Research

What is up in CEE? 2019 Outlook

GDP growth to decelerate in 2019 due to weaker external environment. Hard Brexit and trade wars remain main risk for growth in CEE. Checklist of most important events in CEE to be watched in 2019

Economic growth in CEE should decelerate to 3.6% in 2019, from an estimated 4.4% in 2018. The main reason behind the slowdown should be the gloomier external environment – especially the lower growth outlook for Germany – which partially reflects some fears surrounding post-Brexit foreign trade and the potential escalation of trade-wars. We also see hard Brexit and the buildup of new trade barriers as the biggest risk factor for CEE growth in 2019. In our recently published reports, we see these risks at about 0.3-0.9% lower output in the event of hard Brexit and up to 0.7% for reciprocal increase of tariffs which would dampen global trade.

We expect the Czech central bank to continue its monetary tightening in 2019 with at least one rate hike. However, there might be as many as three rate hikes if the CZK does not appreciate according to the CNB’s plans. We recently changed our call for Romania, where we expect no change in rates throughout 2019, which may lead to a weaker RON unless the government starts ambitious consolidation. Monetary conditions will also remain loose in Hungary, posing some risks to the HUF in times of market stress.

The political situation may be rather shaky in many CEE countries. Except for Hungary, we see significant risk of governments losing their majorities in parliaments. The Romanian government just lost a simple majority in the Lower House of Parliament, the Slovak government approved the state budget only with the help of “independent MPs”, while PM Babis faces the risk of a coalition breakup. However, in all three cases, a new majority could be recreated without calling snap elections. After the landslide victory of PiS in 2015, the recent polls suggest that PiS would not be able to form the government alone after elections in 2019. Under some circumstances, even a coalition of PiS and Kukiz’15 might be short of votes to form a majority government. We expect a couple of rating upgrades for Croatia, Serbia and Slovenia. Croatia might even regain investment grade rating next year.

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General information

AuthorErste Group Research
Product nameCEE Economies Special Report
Topic in focusFX, Macro/ Fixed income
Economy in focusCroatia, Czech Republic, Hungary, Poland, Romania, Serbia, Slovakia, Slovenia
Currency in focusCroatian Kuna, Czech Koruna, Euro, Hungarian Forint, Polish Zloty, Romanian Leu, Serbian dinar
Sector in focus-


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