Page 5 - Central & Southeast Outlook 2020

investment (FDI) and the expansion of global value chains, even before trade conflicts had escalated, as automation reduced the value of relocating production to lower-wage economies. FDI inflows to the EBRD regions have continued to moderate in recent years.”
It projects that amid a slowing across CEE and Eurasia, the sharpest slowdown in growth over the next few years will be seen in Central Europe, the Baltic States and Southeast Europe.
Strong absorption of European Union structural and cohesion funds also supported the economies of the Visegrad four and Baltic states. However, countries in the region, especially those with the most advanced economies, are expected to do less well under the next EU budget cycle.
Politically, the “illiberal democracies” of Central Europe, especially Hungary and Poland remain on a collision course with Brussels. I the latest stage of the standoff over Poland’s judicial reforms, the country’s Supreme Court warned that the planned law allowing judges to be fired if they criticise the government’s judiciary reforms could “lead straight to Poland’s exiting the European Union”. Meanwhile, the rule of law inquiry under the Article 7 procedure against Hungary will continue in 2020.
While Hungarian Prime Minister Viktor Orban’s Fidesz party remains firmly in control at national level, the opposition has made some progress recently. The ruling party looks rock-solid in rural areas, whereas it is losing the young, educated urban voters in large numbers.
Similarly, Smer-SD remains the most popular party in Slovakia, ahead of the 2020 general election, though the opposition hopes to make gains as the scandal surrounding the killings of journalist Jan Kuciak and his finance remains strong in the public consciousness.
Another one to watch will be the Czech Republic, with the reopening of the fraud investigation into Prime Minister Andrej Babis in the Stork's Nest case as well as the European Commission audit into conflicts of interest related to Babis’ conglomerate Agrofert.
Challenging the rulers of the Visegrad four states, the mayors of Warsaw, Prague, Bratislava and Budapest, who are all in opposition to their countries’ governments and share liberal values, have recently launched a new alliance and urged the EU to bypass national governments and fund cities directly.
Public finances are in most cases healthy, though the European Commission identified Slovakia as among eight eurozone countries with risks of deviation, when assessing the structural balance as well as the expenditure rule.
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