Poland: Robust expansion amidst constitutional fragility

The Polish economy maintained a solid growth trajectory, supported by accelerated absorption of NextGenerationEU (NGEU) funds. GDP growth reached 4.0% year-on-year end of 2025 and stood at 3.7% for the full year 2025. The expansion was primarily driven by domestic demand, with strong contributions from both household and public consumption. External dynamics have become less supportive, however. Net exports weighed modestly on growth, partly reflecting the delivery of costly military equipment (see figure CEE1). Growth momentum moderated at the start of 2026, with GDP rising by 0.5% quarter-on-quarter in the first quarter, in line with our nowcast. Despite this softer sequential performance, the underlying growth outlook remains solid. For 2026, we expect real GDP growth in Poland of around 3.1%.

Inflation in Poland remains a point of concern for the National Bank of Poland (NBP). The annual CPI inflation rate rose to 3.2% in April 2026, up from 3.0% in March, marking its highest level in ten months. This increase was largely driven by higher energy and fuel prices, with prices of electricity, gas and other fuels rising by 4.7%, alongside an 8.4% increase in fuel and transport-related costs. Core inflation has moved back within the central target range, although services inflation remains persistent (“sticky”), supported by nominal wage growth of around 7% year-on-year.

The NBP kept the reference interest rate unchanged at 3.75% in May. NBP Governor Adam Glapiński emphasised that, while global demand is weakening and the zloty remains stable, uncertainty related to geopolitical developments and fiscal expansion necessitates a cautious, data-dependent approach.

Hungary: The historic shift toward European integration

Hungary’s economy started the year positively by growing 0,8% quarter-on-quarter, or 1.7% year-on-year, in Q1 2026. The expansion was supported by strong March retail sales and improving industrial output, suggesting that the stagnation observed in 2023–2025 may be coming to an end. Annual inflation rose slightly to 2.1% in April 2026 from 1.8 % in March, with food prices being less deflationary, remaining well within the central bank’s target range. For now, profit caps remain in place, but will be gradually phased out in the medium term, to avoid inflation spikes. For 2026, we expect average HICP inflation of 3.3%, rising to 3.7% in 2027.

Financial markets responded with strong optimism to Péter Magyar’s election victory. The forint appreciated significantly, while risk premia on Hungarian sovereign assets declined, as investors priced in the prospective unfreezing of EU funds. In April, the Magyar Nemzeti Bank (MNB) kept the base rate unchanged at 6.25%, maintaining a stability-oriented stance to anchor inflation expectations during the transition period.

Hungary’s incoming administration is setting out an agenda centered on EU reintegration, structural reform and greater policy transparency. Magyar has prioritised unlocking more than EUR 17 billion in suspended EU funds, including EUR 10.4 billion relating to the Resilience and Recovery Facility (RRF). A commitment to implement the rule-of-law and judicial reforms is required for disbursement. Hungary's EUR 16 billion SAFE defence plan submitted by the defeated Orbán government is being reassesed due to corruption risks. The government has also pledged to adopt the euro by 2030, a move supported by two thirds of the population (see figure CEE2), implying a significant fiscal adjustment to meet Maastricht criteria. 

Czech Republic: Fiscal pivot and stronger inflation

The Czech economy continues its modest recovery, despite weak first-quarter growth of below 0.2% quarter-on-quarter. CPI inflation rose to 2.5% year on year in April 2026 from 1.9% in March. This six‑month high was driven primarily by a rebound in energy prices (1.5% versus -1.7% in March) and sustained growth in services (4.8%), where labour costs remain the main driver, while food prices remained in deflation. Core inflation remains elevated at around 2.9%, reflecting persistent housing‑related cost pressures and nominal wage growth of roughly 7%. Given the recent strengthening of pro‑inflationary factors, we have raised our average HICP inflation forecast to 2.3% in 2026 and 3.2% in 2027. The Czech National Bank has kept its policy rate unchanged at 3.5% through May 2026, maintaining a cautious stance in response to lingering inflationary pressures.

Slovakia: Fiscal consolidation and democratic friction

Slovakia’s macroeconomic environment in 2026 is defined by a necessary but painful fiscal consolidation. The country is projected to record a low 0.6% growth in 2026 (see figure CEE3). In the first quarter of 2026, the Slovak economy expanded by only 0.17% quarter-on-quarter, equivalent to 0.9% year-on-year growth.

HICP inflation increased to 4.1% in April, although food price growth eased further to 0.98%. However, housing and utilities inflation accelerated to 9.3%, driven by the return of district heating and thermal energy prices to market levels.

The labour market faces demographic challenges, as an ageing population and persistent labour shortages limit potential growth. We nevertheless expect the unemployment rate to rise towards 5.9% in 2026. Slovakia remains heavily reliant on its automotive sector, leaving it vulnerable to global trade uncertainties. Threats by Donald Trump to reimpose 25% tariffs on EU automobiles would disproportionately affect Slovakia (see economic brief Imposing tariffs on European cars - Slovakia is the most vulnerable).

Slovakia’s political trajectory under Robert Fico has shifted markedly since mid-April 2026, with a series of contentious reforms prompting warnings from the European Parliament that EU funds could be at risk. Our growth forecast for 2027 of 1.2% depends heavily on the launch of the new Volvo plant and the efficient absorption of RRF funds before the August 2026 deadline. Fiscal policy is moving towards consolidation, with the 2026 budget targeting a deficit of 4.1% of GDP through measures such as a public sector wage freeze, higher excise duties, and a reduction in public holidays.

Bulgaria: Eurozone integration amidst energy turmoil

In April 2026, Bulgaria’s annual CPI climbed sharply to 6.8%, up from 4.1% in March. This surge, the highest since 2023, was almost entirely driven by an 18.5% rise in transport costs and a 5.3% increase in food prices, reflecting disruptions in global oil and gas supplies (see figure CEE4). We expect annual average HICP inflation of 4.1% in 2026. Despite these figures, the Bulgarian National Bank (BNB) and the ECB maintain that euro adoption itself has had a limited impact on consumer prices, with changeover-related effects concentrated primarily in the service sector. Nevertheless, the new Bulgarian government has proposed amendments to the Consumer Protection Act which would require large retailers to justify price increases on the basis of cost developments, as part of broader monitoring efforts during the transition period.

Real GDP growth remains robust, forecast at 2.6% for 2026. Investment has accelerated, supported by the absorption of RRF funds and improved business confidence following euro adoption. However, net exports are expected to contribute negatively, as the rising energy bill deteriorates the trade balance.

Bulgaria’s political landscape has undergone a decisive shift following the parliamentary elections of 19 April 2026, which delivered a landslide victory for Rumen Radev’s Progressive Bulgaria party with 131 out of 240 seats, bringing an end to the prolonged period of fragmentation that had characterised governance since 2021. The new administration has moved quickly to address the external energy shock, announcing a EUR 100 million support package, including targeted monthly assistance of EUR 20 for vulnerable households alongside liquidity support for small and medium-sized enterprises.

Box 1 – Political instability threatens necessary reforms in Romania

The Romanian four-party government coalition, composed of PSD, the centre-right PNL, the liberal USR, and the ethnic Hungarian minority party UDMR, was formed in June 2025 to contain the rise of the far-right Alliance for the Union of Romanians (AUR), led by George Simion, and to steer the country’s fragile economy back towards stability. The government’s mandate was straightforward but not easy: to raise taxes, cut public spending, and preserve Romania’s investment-grade credit rating while unlocking EUR 11 billion in EU recovery funds.

Prime Minister Ilie Bolojan (PNL) succeeded in bringing the deficit down to approximately 7.9% of GDP in 2025 (see figure CEE5), but this came at a steep political price. Consequently, the PSD, the largest party in the coalition and historically the dominant force in Romanian politics, found itself co-owning deeply unpopular austerity measures and concluded that the political costs of staying outweighed the institutional costs of leaving.

On 23 April, Deputy Prime Minister Marian Neacșu and six ministers, all from the Social Democratic Party (PSD), resigned from the Romanian government. This effectively dismembered the “grand coalition” assembled just ten months earlier. The PSD joined forces with AUR to file a no-confidence motion in Parliament. The motion passed on 5 May with 281 legislators voting in favour and only four against, a historic margin. Bolojan’s remaining coalition allies, PNL, USR, and UDMR, were present in Parliament but abstained rather than voting against their own prime minister. The Romanian currency, the leu, hit a historic low against the euro.

The alliance between PSD and AUR is less paradoxical than it may appear. Both parties are, for different reasons, hostile to the pace and form of fiscal consolidation. AUR frames it as EU-imposed technocratic cruelty, while PSD presents it as ideologically misguided liberalism. Recent opinion polls suggest that together they could command a parliamentary majority (see figure CEE6), although they have stated that they do not seek long-term collaboration.

Romania’s political instability has consequences that extend beyond the domestic arena, particularly for its ability to implement EU-backed programmes. Romania has already taken key steps to secure access to approximately EUR 16.7 billion under the EU’s SAFE defence financing mechanism. Parliament approved EUR 8.3 billion in defence contracts on 29 April, and on 5 May the outgoing government authorised the signing of the loan agreement with the European Commission. However, SAFE funding is disbursed in tranches conditional on the fulfilment of investment milestones, and the programme runs until 2030. With the government now operating in a caretaker capacity and several ministries politically weakened, the main risk has shifted from access to implementation. This risk is even more pronounced for Recovery and Resilience Facility funds, where disbursements are directly tied to the completion of structural reforms, raising concerns that ongoing political fragmentation could delay or jeopardise future payments. Nonetheless, the European Commission recently provided a favourable preliminary assessment of Romania’s fourth payment request under the Recovery and Resilience Facility, advancing the process towards the release of EUR 2.62 billion.

President Nicușor Dan, the centrist former mayor of Bucharest elected in 2025, is considering four scenarios: a minority government centred on PNL and USR, a minority government centred on PSD, a political government with a technocrat as prime minister, or a fully technocratic cabinet. Dan has explicitly rejected snap elections and has been conducting formal consultations with parliamentary parties in May, pledging a new government within a "reasonable" timeframe. The question is whether the incoming government, whatever form it takes, will have the legitimacy, the majority, and above all the political will to implement badly needed reforms. Far-right and Eurosceptic parties are on the rise, capitalising on widespread disillusionment with the ruling establishment. AUR alone commands roughly 36% in current polls.