May 23, 2025
In a recent address in Ljubljana, discussions centered on the economic challenges and policy priorities for Central, Eastern, and Southeastern European (CESEE) countries amid global uncertainties. The focus was on the impact of geoeconomic shocks and trade policy volatility on these regions.
The growth forecast for Europe in 2025 and 2026 has been downgraded due to heightened uncertainty. The CESEE region is expected to see a more significant impact compared to advanced Europe, with growth rates adjusted from over 3 percent to 2.4 percent in 2025 and 2.7 percent in 2026. This adjustment is largely attributed to the region's substantial manufacturing sector.
Despite inflation decreasing somewhat faster in CESEE countries, it remains above targets due to persistent services inflation and high wage growth. The changing global landscape poses varied impacts across the CESEE regions, particularly affecting countries like Hungary, the Slovak Republic, and the Czech Republic.
"Primarily, changes are permanent," it was noted. "Businesses and households will need to adapt." Two main channels were highlighted: integration into global value chains and direct trade linkages with major economies like China and the US.
Tariffs between the US and China have been lowered but remain high, posing potential risks for specific sectors such as automotive exports from Hungary and Slovakia. "Any increase in tariffs would have substantial dampening effects on growth," it was emphasized.
Trade diversion effects could arise if US-China tensions persist, potentially increasing EU imports from China or leading US companies to seek new export destinations. Such shifts could also influence competition in third-country markets.
Preliminary estimates suggest that trade diversion could lead to higher imports from China by around 0.25 percent of EU GDP in the near term. These effects are expected to be manageable overall but significant for individual countries or sectors.
Policy recommendations included maintaining macroeconomic stability through credible policies while addressing high wage growth that affects competitiveness. Rebuilding fiscal buffers remains a priority amidst low growth prospects and rising spending needs.
Domestic structural reforms were identified as an untapped source of growth potential for Europe. Successful implementation requires political will and capacity building at national levels.
"The EU budget could play a catalyzing role," it was suggested, highlighting initiatives like the Recovery and Resilience Facility (RRF). Future financial frameworks should build on this momentum by embedding performance-based approaches where incentives are currently weak.
To maximize EU financing impact, projects complementing EU-level objectives should be rewarded while ensuring policy coherence across government levels is essential for successful implementation.
The address concluded with a call for further discussion on these key messages.