In Hungary, inflation has reached 4.4% in May, up from 4.2% in April. This increase was higher than what analysts had anticipated and has led to significant fluctuations in the foreign exchange market. Recent inflation figures have spooked the Hungarian forint. It has been remarkably buoyant, bolstering against the euro since the start of this week.
As Hungary grapples with rising inflation, broader economic indicators throughout Central and Eastern Europe (CEE) suggest a complex financial landscape. Coincidently during the same period, the Polish zloty got stronger vis-a-vis euro. This move is part of an overall regional push for currency stabilization, despite shifting economic tides.
Developments in Serbia
In Serbia, the time is ripe for the central bank to take bold steps to improve its monetary policy. On their agenda for today’s meeting is a carefully watched, high-stakes rate setting meeting. Most are counting on it to set the stage for a 75 bps cut later this year. Serbia is getting ready to announce its May inflation numbers, due at noon CET. Jointly with the G20 meeting, it will announce its new key interest rate. Analysts are closely monitoring these moves, as they could affect the balance of economic stability and growth throughout the region.
The expected cut in the interest rate is a reflection of Serbia’s adaptation to the growing inflationary trends and economic pressures. It indicates a more ambitious strategy in reducing fiscal risks and promoting economic growth. The central bank’s actions may be influenced by regional dynamics, particularly as Hungary’s inflation figures highlight the challenges faced by neighboring countries.
Romania’s Inflation Concerns
Romania’s annual inflation rate – measured at 5.45% in May 2023 – is under inflationary pressure. Romania Governor Mugur Isarescu of Romania’s central bank put particular focus on protecting the economy from fiscal risks, saying it is necessary for a stable economy. His comments highlight the need for a more proactive monetary policy as inflation skyrockets across the West.
Considering how interconnected these economies are, as seen with recent turmoil in their banking sectors, any negative developments in Hungary, Serbia and/or Romania would have a cascading effect. Every country has its own inflation story. Their answers will be pivotal in determining what the overall economic environment will look like in Central and Eastern Europe (CEE).
Global Economic Outlook
Beyond regional considerations, the World Bank has released alarming projections for global economic growth that could spell double trouble for local economies. The global development organization projects that the global economy will expand at just 2.3% this year and 2.4% in 2026. It warns that global trade growth in goods and services is expected to slow sharply in 2025, dropping to just 1.8%. This long-anticipated slowdown has many wondering how emerging markets in CEE will fare when their trade starts to shrink like the rest of the world’s.