The Central and Eastern European (CEE) region is currently undergoing massive shifts in its economic landscape. On the currency front, we observe remarkable moves in dollar strength and long-term yields. The Hungarian forint has exhibited remarkable resilience against the euro throughout this year, reflecting the underlying economic conditions in Hungary. Substantial regional disparities in long-term yields have developed. Czechia is doing the best, with the lowest long-term rates of about 4%, while Hungary and Romania are at risk due to long-term yields nearing 7%.
In Romania, a series of recent fiscal consolidation measures have started to impact, adding to the economic picture. The country is moving to a new central bank comfort zone. We should expect interest rates to settle somewhere in the range of 5.05%-5.10%. This turnaround is a strong sign that our policymakers are taking timely actions to curb inflation and lay the foundation for continued economic growth.
Serbia likely to begin monetary easing in second half of year. If successful, this move would be a great indication of the country’s potential economic policy shift. Each of these moves would be a powerful tonic to energize activity right now. The external environment should not be a major drag on growth in the CEE region. Even with this positive outlook, policy uncertainty still casts a heavy shadow, creating strong headwinds for investors and business across the board.
Looking forward, economic conditions in the CEE region are expected to marginally recover next year. Average growth rate Experts expect the average growth rate of the CEE8 countries to increase significantly starting in 2026. It will increase from 2.3% in 2025 to 2.7%. This expansion is supported in large part by expectations of moderating inflation throughout the continent and falling long-term yields. Most analysts expect long-term yields to decline over the course of 2026. We expect this decline to be propelled by falling inflation rates and a move back towards monetary easing.
In Czechia, the terminal interest rate is 3.5%, which is triple the previous lowest benchmark across the region and further underscores the Czech National Bank’s hawkish trajectory. Cautiously hawkish It is likely that the NBG will take a variegated path to monetary easing. Expect the first rollout steps to happen in the second half of 2026, probably closer to the end of that year. This cautious approach is indicative of the Fed’s continued vigilance in evaluating the state of the economy and persistence of inflationary pressures.
Local and state policymakers are swimming vigorously in these dangerous economic seas. It will be important to see how each country adjusts both in order to spur growth and address inflationary fears. These dynamics are important and complex. It’s important to appreciate the regional divergence and the interplay between fiscal and monetary policy.