According to recently published Eurostat data, Central and Eastern Europe accelerated in H1, posting the fastest pace of economic growth since 2008.

We believe this performance was driven by factors such as:

1. The acceleration of the euro area economy, the region’s main trading partner, with positive implications for external demand;
2. Low real financing costs and a revival of the credit market;
3. Higher absorption of structural funds;
4. A favorable labor market environment (the unemployment rate is currently near the lows seen in the 1990s);
5. Wealth effects – rising prices for real estate and financial assets.

Romania’s GDP stands out (accelerating to 5.8% year-on-year in H1), driven by domestic demand, supported by an accommodative policy mix.

Poland’s economy also grew by 4.3% year-on-year in H1, the fastest pace in the past six years.

At the same time, the Czech Republic’s GDP advanced by 3.8% year-on-year in the first half of this year, the strongest since 2015.

Last but not least, Hungary’s economy grew by 3.7% year-on-year in H1, the fastest since 2014.

We would highlight that the region’s acceleration (and growth above potential) has also rekindled inflation, after the historic lows of recent years.

In this context, the post-crisis monetary cycle reached Central and Eastern Europe this summer, with the Czech central bank raising its policy rate by 20 basis points to 0.25%.

At the same time, the National Bank of Romania has indicated it is prepared to begin a monetary tightening cycle in the near term, given the economy’s above‑potential growth, the rapid convergence of inflation toward target, and the build‑up of risks to medium‑term macro-financial stability.