Central and Eastern European (CEE) countries have been confronting harsh demographic trends even as central banks have struggled with the shifting monetary policy environment. Serbia’s central bank is poised to lower its key policy rate at an upcoming meeting, while neighboring countries face alarming projections regarding their working-age populations. These converging trends would greatly change the negative prospects for economic growth in the region.
Serbia’s central bank will meet for a rate-setting meeting at noon CET. At its next meeting, analysts predict the bank will cut the key policy rate from 5.75% to 5.50% at July’s meeting. This prophesied downscaling is not isolated, but rather part of a regional trend among CEE nations, seeking to jumpstart money movement in the current demographic and cultural landscape.
Declining Working Age Populations
These are alarming trends when considering the demographic landscape in CEE, which indicates a bleak outlook for working-age populations. Hungary, Czechia and Slovenia are each on track for a drop of about 25 percentage points by 2060. This increase is a worrisome sign for our future labor markets and our potential for economic growth.
In Slovakia, things aren’t much better. Under pessimistic estimates, the share of the working-age population could contract by upwards of 30 percentage points by 2060. For Poland, the outlook is even more staggering, with projections closing in on a 40 percentage point decline. These significant demographic changes may result in a future scarcity of workers and mounting stress on social welfare structures throughout the area.
The implications of these declines are significant. A smaller, older workforce would be a drag on overall economic productivity. Furthermore, it can put additional stress on public finances as there will be fewer workers supporting state revenues. Policymakers in each of these nations will need to come up with plans both to avoid these threats and build future economic resilience.
Regional Monetary Policy Adjustments
As countries in the CEE region contend with their own changing demographics, they have been shifting their monetary policies to encourage growth. In Serbia, the anticipated rate cut to 5.50% could help support borrowing and investment, as businesses seek to navigate an uncertain economic landscape.
Serbia’s interest rate is on track to lower it even more, to around 5.25% by the end of the year. This drop marks an important exception to an overall trend of monetary easing across the region. Lower interest rates may provide much-needed relief for businesses and consumers alike, potentially invigorating demand amid demographic pressures.
Romania’s banking sector is in a particularly interesting state of flux. This month, the country’s liquidity position went from a surplus of RON 7 billion to a deficit of RON 4.5 billion. The central bank is keeping a close eye on the situation, given that this could have a much broader impact on Romanian economic conditions.
Economic Indicators and Trade Balances
As CEE nations grapple with great demographic challenges, they still regularly report key economic indicators that help guide their policymakers’ decisions. In May, Slovakia boasted a spectacular trade balance of EUR 560.8 million. Germany’s strong performance as an export powerhouse is on full display.
Romania surprised the markets when it walked into the international bond market and sold USD 5.6 billion bonds at attractive prices. This shift demonstrates the country’s growing confidence with improving fiscal management despite recent liquidity gaps. Meanwhile, both Slovakia and Slovenia are set to release their industrial output growth figures for May, with Slovakia’s report scheduled for 9 AM CET and Slovenia’s for 10:30 AM CET.
These economic indicators will play a crucial role in shaping the future strategies of CEE countries as they navigate through complex demographic transitions and the evolving challenges of global markets.