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2021/09/13 / Erste Group Research

Are we getting back to normal?

Strong economic recovery is well underway, accompanied by higher inflation what would naturally call for normalization of interest rates. Some statistics have been largely distorted by the base effect and temporal mismatch between demand and supply due to the catching up on one side, and shortages of some intermediate products limiting the production side.

Serbia, Romania, Poland and Hungary have already reached their pre-COVID levels in real GDP and the rest of CEE should achieve that in the next few quarters. The uptick in 2Q21 was mostly driven by rejuvenation of household consumption and investment, whereas net exports marked a more split performance due to the consumption- and investment-driven revival of imports. Overall, robust and resilient labor markets, together with the gradual release of pent-up demand remain supportive of further improvements, especially in household consumption. Even though pick-up in investment lags behind in some countries, the region is soon to benefit from large fund inflows from the EU, courtesy of not only the standard EU funds but also the Next Generation EU recovery plan. Yet, the impact of the latter is expected predominantly from 2022 onwards. Overall, we expect the CEE8 region to mark robust economic growth of 5.7% this year, followed by another strong increase of 5% in 2022. Needless to state, risks related to COVID-19 and supply chain strains remain.

We believe that strong growth and rather high inflation (albeit at a lower level than now) will stay with us also next year, justifying the start of monetary tightening in CEE. In the following months, Czech and Hungarian central banks will continue in their tightening cycles. Romanian central bank should start lifting rates in November while Poland’s central bank will postpone its first rate hike to 1Q22 or even later.

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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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