The energy price shock from the Iran war, together with wider geopolitical turmoil, has done less damage to the economies of Central, East and Southeast Europe than feared. That is the main finding of the autumn forecast published this week by the Vienna Institute for International Economic Studies (wiiw), covering 23 countries. The results still vary sharply from country to country.
Romania and Slovakia are wrestling with large budget deficits and the weakness of the German car industry. Poland, Kazakhstan and the Western Balkans are booming. Almost five years into the war, neither Russia nor Ukraine is managing much growth.
Romania is the notable exception among the European Union’s eastern members. Strict fiscal austerity will tip it into a mild recession this year, with output shrinking by 0.4 per cent. Poland again leads that group, with growth of 3.7 per cent this year and 3 per cent next year.
Eastern EU members are moving away from their traditional role as low-cost manufacturing hubs for Western industrial firms toward higher-value products and services, strong private consumption and public investment. wiiw expects them to grow by an average of 2.2 per cent in 2026, unchanged from its summer forecast, and by 2.5 per cent in 2027, an upward revision of 0.1 percentage points. That would be more than double the euro area’s expected rates of 0.9 per cent and 1 per cent.
Richard Grieveson, wiiw’s deputy director and the forecast’s lead author, said countries that invest in technology and productivity, for example through automation and digitalisation, stand a good chance of continuing to prosper. He pointed to Poland and, to some extent, Czechia, and said Poland’s high-tech industry has grown by around 40 per cent over the past decade.
The region is unlikely to profit as much from Germany’s sluggish recovery as it has in the past. Growth in Germany is increasingly driven by defence and infrastructure spending, rather than by the carmaking and machinery industries into which Central and Eastern European economies are most deeply woven. Grieveson said investment in Central and Eastern Europe’s defence industry and the inflow of EU funds are providing a significant boost to economic growth.
The EU’s tougher line in its trade dispute with China cuts both ways. Greater protectionism could give the region’s industries some breathing space, particularly carmakers closely integrated with German industry and facing fierce Chinese competition. Chinese direct investment, and imports of intermediate goods from China, are likely to become harder and costlier to obtain.