Page 10 - CE Outlook Regions 2024

the rule of law.
In Poland, GDP grew 0.5% y/y in the third quarter, after two quarters of y/y declines. ING estimates GDP growth of 0.3-0.4% in 2023 and around 3% in 2024. In Slovakia, UniCredit bank forecasts that growth will remain subdued, rising to 1.4% this year from an estimated 1.1% in 2023 as EU funds are released.
The International Monetary Fund (IMF) forecasts the miserable economic growth in the Baltic states will come to an end, with 2.9% growth for Lithuania, 2.7% for Latvia and 1.9% in Estonia in 2024.
Partly because of the impact of recession, the region’s inflation – previously the highest in the EU because of the high weighting of food and energy prices in its CPI baskets – has fallen dramatically, in Hungary by around 20 percentage points and more than 10 percentage points in Czechia and Poland. The disinflationary trend is expected to continue this year, albeit at a slower rate.
Hungary’s inflation peaked at 25.7% in January and hit just 5.5% in December, averaging 17.6% for the whole year, the highest level since 1997. In Czechia, inflation was 6.9% in December, while in Slovakia it was 5.9%, and 6.2% in Poland.
Rate cycle turns again
Falling inflation has enabled central banks to begin to cut rates. The region was the first in the EU to begin raising rates in April 2022; it has now become the first to cut them. The Polish, Hungarian and Czech central banks have already started a new cycle of monetary easing, which is expected to continue this year.
Once again Hungary launched the new trend by cutting its interest rate from a peak of 18% in May. At its last rate-setting meeting in December the central bank cut the base rate by 75bp for the fourth straight month, which brought it to 10.75%.
Poland’s central bank controversially began cutting rates just in September before the October election and, after another cut in October, the reference interest rate is currently at 5.75%. Many analysts expect the current pause in cuts to continue for the moment, given that inflation may revive in the second half of the year.
The Czech central bank belatedly began cutting in December, by 25 basis points to 6.75%, in the first change since June 2022, and it is expected to accelerate the monetary easing this year.
Central Europe also stands out in Europe because of its high budget deficits, which have ballooned because of state support to help mitigate
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