Despite the reintroduction of new COVID-19 restrictions across Central Europe, the effect on local manufacturing has remained relatively soft, and exporting sectors have retained some of their momentum. The likely extension of existing restrictions, however, will have a negative spillover effect well into Q1 2021 and will prolong the region’s recovery, with risks remaining on the downside. The recent amendment of the “rule of law” conditionality, attached to the 2021–2027 EU budget, prompted Hungary and Poland to lift their vetoes and paved the way for the eventual approval of the budget, thus securing the much-needed recovery funding for the rest of the region. The Romanian general elections failed to produce a decisive winner and will likely result in a broad and fragile center-right coalition; nevertheless, it should be capable of introducing urgent fiscal amendments for next year’s budget. Turkey’s central bank announced a new monetary plan for 2021, which will involve a series of rate hikes that may complicate partners’ access to working capital.

Recovery in both external and domestic demand dynamics will ensure a resilient and robust rebound going forward. Recovery in the external environment and domestic demand dynamics will provide a boost to local labor markets, leading to a pro-cyclical recovery in 2021. The pace of the rebound will vary significantly, however, with markets in Southeast Europe experiencing a relatively softer improvement.

Access to the EU’s recovery fund and the beginning of the new EU 2021–2027 fund will fuel public investments. The EUR €750 billion fund that includes a mix of loans and grants will provide the necessary infusion of capital to sustain new public investment projects and ease fiscal pressures on local governments.

Mobility trends across Central Europe suggest that consumer behavior is returning to pre-COVID-19 levels at a relatively quick pace. Consumer behavior across Central European markets is gradually returning to pre-COVID 19 trends and will support the resilient recovery of consumer spending going forward into 2021.

Watch our Central and Eastern Europe 2021 Outlook webinar recording, during which our analysts provide their outlook for Central Europe, drivers of growth in the major markets and demand segments, as well as key actions executives can take to mitigate risks and capture opportunities.

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