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2021/03/15 / Erste Group Research

Euphoria and challenge for central banks

CEE economies are to expand by 3.8% in 2021 and 4.5% in 2022. The pandemic situation remains the most prominent risk. Central banks will be challenged by very high readings inflated by the base effect. Only the Czech National Bank is to start to normalize its interest rates this year.

Following last year’s pandemic-induced GDP contraction, all CEE countries should experience a much-anticipated rebound in economic activity, growing by 3.8% and 4.5% on average in 2021 and 2022, respectively. Nevertheless, the strength of the recovery is likely to vary from country to country.

The pandemic situation remains the most prominent risk for the growth this year but faster rollout of vaccines in the region could mitigate this risk and speed up the recovery. Furthermore, on the positive risk side, there is a substantial amount of pent-up demand that could surprise to the upside in 2021 and lift GDP growth in the region. On the other hand, the labor market has been doing surprisingly well but some hidden wounds can be revealed once government support schemes are phased out. We assume that Recovery and Resilience Facility will have only a limited impact on growth in 2021; more tangible impact can be expected in 2022-2023.

The next couple of months will be very challenging for central bankers. Due to the base effect from last year’s collapse of fuel prices, we will likely see high inflation readings in the coming months in CEE. Those high readings will be coupled with double-digit growth of industrial production and retail sales, while regional central banks continue to stick to loose monetary policy. Only the Czech central bank will increase the repo rate twice this year and we do not rule out an increase of the 1-week deposit rate by the Hungarian central bank.

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General information

AuthorErste Group Research
Product nameCEE Country Macro Outlook
Topic in focusFX, Macro/ Fixed income
Economy in focusCEE
Currency in focus-
Sector in focus-


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