CEE below the EU average in GDP per capita

On the radar

• Hungarian central bank cut the key policy rate to 8.25% on Tuesday’s meeting.

• Unemployment rate in Hungary went up marginally to 4.6% in February, while current account deficit in the 4Q23 widened to EUR 561 million.

• There are no other releases scheduled for today.

Economic developments

In 2023, the CEE countries ranked low in terms of gross domestic product per capita (expressed in purchasing power standards). Throughout the whole European Union, it ranged between 64% of the EU average in Bulgaria and 240% in Luxembourg. A high GDP per capita stands out as partly due to the countries' large share of cross-border workers in total employment. In Ireland, the second outlier, a high level of GDP per capita can be partly explained by the presence of large multinational companies holding intellectual property. From the region, Czechia and Slovenia were the closest to the EU average, with GDP per capita at 91% in both countries. These two countries remain the wealthiest within CEE. In the rest of the region, GDP per capita ranged from 73% of the EU average in Slovakia to 80% of the EU average in Poland. As for Slovakia, which is surpassed by countries such as Hungary and Romania, methodological issues affect the country's position.

Market movements

On Tuesday, the Hungarian central bank reduced the policy rate by 75 basis points to 8.25%. Both the O/N deposit and O/N lending rates were also lowered to 7.25% and 9.25%, respectively. During the meeting, three options were on the table: 100, 75, and 50 basis points rate cuts. In general, the disinflation process allows for a further reduction in the base rate, while the increasing financial market risk aversion justifies a slower pace than in February (100 basis points cut). Looking ahead, Deputy Governor Virag suggested that the policy rate could be between 6.5-7.0% at the end of the first half of the year, which indicates the pace of cuts will be slowed to 50 bps from April onwards. After June, resurging inflation figures due to awakening domestic demand and the unfavorable base effect could leave the policy rate unchanged for months. In Poland, the motion to probe Governor Glapinski was signed by 191 Members of Parliament and is considered a first step in the process that could lead to putting Governor Glapinski in front of a special tribunal. The central bank's authorities consider the motion to be a threat to the central bank's independence.

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