Serbia’s central bank recently maintained its key policy rate at 5.5%, a decision that reflects ongoing efforts to stabilize the national economy amidst fluctuating industrial outputs in the region. At the same time, Slovakia and Slovenia announced contractions in their industrial production and Romania made a successful issue of government bonds on international markets. A historic increase in defense production is underway throughout Central and Eastern Europe (CEE). This change of direction reveals a historic pivot from the region’s historical economic driver.
Economic Stability Efforts
In its most recent meeting, Serbia’s central bank decided to hold the key policy rate steady at 5.5%. This decision is an important contribution to promoting long-term economic stability and combating high inflation, which continues to be a troubling force across the region. The bank is adopting an overly cautious approach that reflects national economic trends. Central and Eastern European countries face variable experiences across industrial output as well as inflation.
Czechia finally confirmed a very low inflation rate of just 2.9% yoy. This led its central bank to signal the importance of maintaining very contractionary monetary conditions. This clearly precautionary position is a testament to the pressures weighing on regional economies as they find their post-pandemic footing amid uncertain global market forces.
Declining Industrial Outputs
According to recent, preliminary data, a rather alarming trend shows in the industrial production throughout the CEE region. Additionally, Slovakia’s industrial production declined by 4.0% YOY in May, hinting at further challenges to its manufacturing sector. In a similar vein, Slovenia fell back with a decrease of 0.2% over the same timespan, potentially dragging down regional economic growth as a whole.
These declines underscore the fragility of the industrial sector. They are particularly alarming given the current state of passenger car production, which accounts for about 90% of the total car manufacturing in both the EU27 and CEE regions. Nearly half of all passenger car imports are sourced from these areas. Thus, if production goes down it will hurt the economy and jobs.
Rising Defense Production
As a result, defense production in the CEE region has skyrocketed. This growth is a tremendous success story, especially contrasted against the risks and struggles of traditional manufacturing sectors. In the early part of 2025, the production index for ammunition and weapons jumped to almost 170. Together with 2022, this historic jump represents the largest increase since at least 2021. This increase has continued to make headlines as countries around the world are building up their militaries while the global geopolitical landscape continues to change.
Romania has been active in this sector as well, recently selling RON 1.2 billion in local government bonds maturing in 2030, priced to yield 7.31%. Smart federal financial maneuvers can further bolster our national defense initiatives. They are addressing inflation at 5.66% year-on-year in Romania currently.
Producer prices in Croatia surged by 1.4% on YoY basis in June. This big jump is an ongoing testament to how regional economies are struggling with an oppressive double whammy of inflation and production costs.