Most economies in Central and Eastern Europe (CEE) will experience stronger GDP growth in 2026 as external demand picks up and fiscal policy is kept loose (or loosened), while Russia’s economy will stagnate amid low oil prices as well as war and sanctions pressures. Softer inflation will allow for more interest rate cuts in some parts of the region than we previously expected, but most of our monetary policy forecasts still are on the hawkish end of analysts’ expectations.
Despite the weakness of the Russian economy, we doubt President Putin will be willing to compromise in peace negotiations and our baseline view is that the war in Ukraine drags on. Still, a peace deal would present some upside risks to our forecasts, most of all for Ukraine, and Russia could benefit from possible sanctions relief from the West. The benefits to the economies of CEE would be smaller in scale.
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