Central and Eastern Europe are facing transformative economic transitions. Slovakia recently published her trade balance figures, and Poland and Romania are preparing for big fiscal holes. What’s more, Fitch Ratings has placed Hungary on downgrade watch with a negative outlook. New state fiscal realities meet new political uncertainty. These developments pose a dangerous risk to the credibility of these countries’ fiscal promises.
Slovakia’s trade balance came out at 9 AM CET on October 30th. These figures should provide insight into the country’s economic health and its competitiveness on the global stage. This data will impact sentiment on the region’s markets as investors look to gauge Slovakia’s trade picture.
Budget Deficits Loom for Poland and Romania
Poland and Romania, meanwhile, are projected to be staring down the gun of the two largest budget deficits in the European Union in 2025. Some analysts are already cautioning that Poland could run into fiscal problems as early as 2026. Yet the country faces mounting costs and a lack of growth in revenues. Experts have cautioned that persistent deficits like these might increase our borrowing costs and decrease faith in domestic investors.
Romania’s budgetary dereliction is projected to last through 2026. Political instability ahead of next year’s general elections (2026) adds to Romania’s complex fiscal environment. Continual changes of the national budget have contributed to a perception that the government cannot be trusted to manage its finances appropriately. This instability has been seen by many observers as potentially damaging to the South Asian nation’s economic recovery.
The consequences of these budget shortfalls go much deeper to affect non-fiscal priorities. Both countries are highly challenged by forecasted economic downturns. This uncertainty would likely cause prospective investors to reconsider their plans, which would trigger broader economic fallout across the region.
Hungary’s Outlook Revised by Fitch Ratings
Fitch Ratings also recently affirmed Hungary’s credit rating at BBB. This time, they have changed the outlook to negative, which is a big deal. This change is indicative of worries about Hungary’s economic inflight path as it experiences increasing pressures from networks, public and abroad. The revision has had an immediate impact on Hungary’s foreign exchange market, with the EURHUF currency pair moving toward a rate of 384 following Fitch’s announcement.
Fitch’s negative outlook underscores the cracks appearing in Hungary’s economic edifice, even as investors grow wary of walking into risky territory. The market is understandably spooked considering the prevailing fear of fiscal soundness in Central and Eastern Europe. Hungary’s experience is quickly becoming the bellwether for the rest of the region.
Currency Movements and Economic Indicators
Further adding to Hungary’s woes, other regional currencies have been on a roller coaster ride as well. The Czech koruna opened the week sufficiently weaker against the euro to indicate concerns about wider economic instability. The Polish zloty had a rough day, falling sharply against the euro. Market participants reacted very negatively to news of growing budget deficits, fueling this huge slide.
At the same time, in another sector of Croatian economy, producer prices growth in November will be released. On the same day, kicking off that Friday at 11 AM CET, they’ll release their trade data for September. These reports will no doubt be pivotal for gauging the overall economic climate in Croatia and with the growing Central European narrative.
The labor market appears healthy near the bottom along a geographic spectrum. In the country we’re covering, the unemployment rate in November was unchanged at 4.6%. This figure indicates that even as some economies face greater fiscal concerns, the labor market might be in better shape.
Local elections to determine the new mayor of Romania’s capital city Bucharest have only just finished. Ciucu, the candidate backed by Prime Minister Bolojan, won with a landslide. This positive political outcome will impact future policy decisions and offer a glimpse of stability in an otherwise economically volatile time.