Summary
In 2026, the region of eleven Central and Eastern European countries that are members of the European Union, EU (11), with an economy totaling USD 2.5 trillion, is expected to accelerate its real economic growth to approximately 2.5% from 2.1% in 2025. The fastest-growing countries – Poland, Lithuania, and Croatia – are predicted to advance at real rates in the range of 2.9-3.5%. The region’s economic growth will be fueled primarily by household consumption, improving private investment, and substantial public projects financed by EU funds. To advance further, balancing countries’ fiscal sustainability with growth-enhancing policies will be crucial.
The global economy showed resilience
The year 2025 was turbulent, with the global economy demonstrating resilient growth amid substantial uncertainties. These stemmed from global trade policy turbulence, current armed conflicts, and geopolitical tensions. Furthermore, the unclear future path of interest rates, stretched equity market valuations, and fiscal unease in several advanced countries further fueled uncertainty. Last but not least, an unclear outlook for how the advent of AI will disrupt the way we work and live was an additional factor contributing to global uncertainty.
According to the International Monetary Fund (IMF), the world economy is likely to post real economic growth of 3.2% in 2025. The growth is fueled by the continued strong performance of the US economy, which, based on data available for the first three quarters, is projected to grow in excess of 2.0% in 2025, according to recent estimates. The two largest emerging-market economies, China (a growth rate of almost 5%) and India (more than 6%), will also make a significant contribution to global economic growth.
German economy stagnating, all CEE economies growing
The EU will have experienced lackluster growth in 2025, as most major European economies are either broadly stagnating (Germany) or growing only weakly (France and Italy), with the expected real growth rate of the latter two countries below 1% in 2025. Spain is the only one of the four major EU economies that will register relatively substantial growth in 2025 (by about 3%).
The economies of Central and Eastern Europe, EU(11), whose combined GDP totalled about USD 2.5 trillion, were on a growth path in 2025, with Poland, Bulgaria, and Croatia the strongest performers. The real growth rates in these countries are likely to exceed 3%, according to European Commission estimates (data for the first three quarters are available). Economic growth was fueled by strong household demand in nearly all countries in the region and by increased investment in most countries, driven by public projects supported by EU funds. Given the headwinds stemming from U.S. tariffs and weak growth in Western Europe, the contribution of net exports to real GDP growth will likely be negative in most, possibly all, countries of the EU(11) in 2025.
Overall, the best-performing CEE countries likely continued to converge toward the real income levels of advanced EU countries in 2025 (to ascertain that, exchange-rate and price level movements must be taken into account). Nevertheless, several CEE countries (including Estonia, Hungary, Latvia, Romania, Slovakia, and Slovenia) have achieved much less progress in convergence over the past year. Growth in these countries is likely to be around or below 1.0% in 2025, according to European Commission estimates.
The global economy to grow by 3.1%
Regarding the global economy and its outlook for 2026, key risks to watch include geopolitical developments, trade policy shocks, potential budget crises, and a non-negligible risk of the abrupt repricing of equities on Wall Street.
Most forecasters predict a broadly flat growth dynamic for the world economy in 2026 (3.1% by the IMF). According to Goldman Sachs’ forecast, the US growth rate is projected at 2.6%. However, some analysts argue that a weakening labor market and the possibility of protracted, elevated inflation pose downside risks. On the other hand, easier financing conditions and OBBBA (One Big Beautiful Bill Act) windfalls may bode well for the demand side of the US economy. Productivity gains from AI-related investments should begin to materialize, representing the key upside risk for the growth of the US economy in 2026.
German economy to grow in 2026, EU’s structural challenges remain
The EU economy is likely to accelerate in 2026, driven by a strong support from Germany’s fiscal stimulus (focused primarily on defense, infrastructure, and energy transition) and expected increased household demand due to higher real incomes. According to the IMF, the Euro area economy is projected to grow by 1.1% in 2026, with the German (0.9%), French (0.9%), and Italian (0.8%) economies expected to accelerate slightly. In contrast, Spain’s buoyant economy is predicted to slow significantly (to 2%).
Long-term structural issues, such as an inadequately integrated single market, labor market imperfections, and a weaker innovative vibrancy relative to the US or China, are not conducive to a more substantial acceleration of economic growth in the EU. Deteriorated fiscal positions, and inadequate policy responses to demographic challenges also undermine the EU’s growth prospects. The increased policy focus on reform in the EU following Draghi’s Report is helpful, but the implementation of the Report’s policy recommendations remains unfinished. Existing political tensions and disagreements within the EU may complicate the outlook for the unified response to the most pressing issues and competitiveness challenges facing the European Union’s economy.
The two major economic engines of the emerging world, China and India, are expected to slow down slightly but will maintain high growth rates (above 4% and 6%, respectively), despite the structural headwinds they face.
Geopolitics, global trade, fiscal issues, and Wall Street
With respect to global risk factors in 2026, geopolitical tensions will likely persist, but can be reduced, if an agreement to end the war between Russia and Ukraine is reached. The long-desired peace would bode well for the war-torn economies of Ukraine and Russia, as well as parts of the EU economy that would benefit from Ukraine’s reconstruction.
According to Neil Shearing of Capital Economics, the global geoeconomic landscape is showing signs of splitting into two blocs: one led by the US, the other by China. This causes reconfiguration of global supply chains – so-called friend-shoring and near-shoring, especially in strategic sectors – and that impacts the flow of trade, finance, and technology. The rise of protectionism related to such bifurcation, along with unforeseen tariff increases by either side – if they materialize – could further weigh on global growth in 2026.
Fiscal prudence, or rather a lack of it, is gaining increasing salience in policy debates in many advanced economies, which have weak budgetary positions and high debt. Should France-like budget stalemates or U.S. government shutdowns recur on a larger scale, there is some risk of contagion throughout the world financial system. An ensuing increase in sovereign bond yields and interest costs could further exacerbate fiscal outlooks and may even depress global growth. Yet, on a more positive note, such developments might finally prompt many countries to undertake long-overdue reforms that would put their public finances on a sounder footing.
Last but not least, there is a non-negligible risk that elevated AI-driven valuations may prove excessive, leading to the abrupt repricing of equities on Wall Street. A significant correction in U.S. equity prices would likely spread to global equity markets and erode substantial wealth as stock prices fall across markets. This would have a knock-on effect on household demand and investment appetite in many countries, potentially depressing global growth.
Medium-term growth outlook below the recent historic average
According to the IMF, in the medium term (2027-2030), the world economy is projected to grow by 3.2%, below the historic pre-pandemic average of 3.7% (2000-2019). Analysts attribute the worsened mid-term outlook to an expectedly more uncertain global economic environment, a more fragmented global economic and political landscape, and a slow pace of structural reform in most countries. The rise of political polarization in many countries further exacerbates economic uncertainty and the outlook for adopting reform policies in individual countries. Lower investment and reduced growth in total factor productivity, due to various inefficiencies, is expected to be a drag on global growth. Population aging in advanced and some emerging economies will result in slower labor supply growth and weaker economic dynamism. On a more positive note, some of the economy-wide productivity gains stemming from the AI revolution may begin to materialize and represent a key upside risk to mid-term growth forecasts.
EU funds to fuel growth in the CEE
These potential benefits of AI also pose a positive risk to growth in Central and Eastern Europe in the medium term. A generally high level of human capital and relatively strong IT sectors mean that the region is relatively well-positioned to benefit from the forthcoming AI revolution . For instance, the region ranks as the third best prepared region after North America and Western Europe in the governement AI readiness index by Oxford Insight (2025).
In 2026, the EU(11) region is likely to accelerate its economic growth compared with the previous year (from 2.1% in 2025 to 2.5%). According to Erste Bank, the CEE economies will benefit from relatively strong, albeit slightly decelerating, private consumption and investment activity, fueled by the drawdown of EU funds in 2026 (the last year of the RRF financing period). Proceeds from the EU’s Recovery and Resilience Facility (RRF) and cohesion funds will bolster these countries’ capital formation, increase investment demand, and help address several structural issues.
According to European Commission forecasts, three of Visegrad 4 countries, Poland (3.5%), Hungary (2.3%), and Czechia (1.9%) are predicted to experience solid growth in 2026 and are likely to further make progress in convergence.
From a Tatra Tiger to a laggard
Once named a Tatra Tiger for its radical reforms and impressive growth record, Slovakia will barely grow in 2026 (by 0.6% according to the forecast of the National Bank of Slovakia). A sub-optimal design of fiscal consolidation, other policy choices, and the effects of U.S. tariffs will weigh heavily on the Slovak economy. The country is thus expected to be the region’s most conspicuous growth laggard in 2026.
Two former Yugoslav republics, Croatia and Slovenia, are projected to grow at rates of 2.9% and 2.4%, respectively. Romania will continue to grow slowly (1.1%) due to fiscal consolidation and persistently elevated inflation, which depresses household consumption. Euro-adopting Bulgaria is expected to grow relatively fast (2.7%) due to strong household demand and public and private investment linked to the EU funds. The Baltic states are expected to accelerate significantly compared with 2025 – Lithuania will grow by 3%, Estonia 2.1%, and Latvia by 1.7%.
Structural reforms to support convergence
The CEE region has achieved impressive economic progress since the start of its transformation to market-based systems about 35 years ago. All CEE countries in the EU (except Bulgaria) now have an income level (PPP) that is at least 70% of the EU level (Czechia leads with 91%). To advance further, balancing fiscal sustainability with pro-growth policies will be crucial. The regional economies should strengthen their innovation and education sectors and further improve the quality of the business environment. Additionally, adopting growth-enhancing policies in the areas of investment incentives, technology advancement, R&D support, and the labor market would go a long way toward accelerating the CEE countries’ growth performance. Ensuring a reliable, long-term supply of low-cost and green energy, should be a policy priority too.
Nevertheless, reform efforts in these areas will likely face challenges, as the political landscape remains unfavorable to reform in many CEE countries and reform fatigue is widespread. However, these economies have demonstrated resilience, vibrancy, and intrinsic dynamism during their past convergence path; hence, the regional outlook for 2026 and beyond appears cautiously optimistic.
Vladimír Zlacký, LookingEast.eu
This article is an amended English language version of the article published in Trend Weekly
References:
- International Monetary Fund, World Economic Outlook, October2025
- Neil Shearing , Fractured Age, John Murray Press, 2025
- European Commission Autumn Economic Forecasts2025
- OECD Economic Outlook, December 2025
- EBRD Transition Report 2025-26, November 2025
- Erste Bank Research, CEE Outlook, Tomorrow to hopefully make up for yesterday, December 2025
- ING Directional Economics, December 2025
- 2025 Government AI Readiness Index, Oxford Insight