CESEE economies to grow 2.6% in '24, 3.5% in '25 - IMF

"With the right policy mix, the economies of central Europe and southeastern Europe can secure low inflation and increase the long-term growth trajectory," Alfred Kammer, IMF European department director said during a meeting of central bank governors from the CESEE region in Split.

"At the macroeconomic level this means monetary policy should maintain a tightening bias and carefully assess the timing and speed of easing," Kammer added.

The IMF expect economic growth in the euro area to accelerate from below 1.0% this year to 1.7% in 2025.

Overall, given current levels of inflation and price and wage dynamics, the IMF forecast suggests that achieving price stability targets will take one year longer in the CESEE region compared to advanced European economies. Kammer said he believes that planned fiscal consolidation is appropriate and should help with disinflation.

"The cost of erring on the side of too-loose monetary policy is significant when inflation is persistent. So, central banks should weigh negative news on inflation more when considering their next policy steps compared to positive news," he said.

Crosswinds from an aging population, uncertainty about energy costs, and geo-economic fragmentation call for forceful growth-enhancing reforms, Kammer said, adding that a prime task is getting the business climate right to help boost investment and productivity, as new investments will also support the energy and green transition.

He pointed out that as an important factor in emerging European economies is the necessity labour markets to cool at just the right pace. As of end-2023, wages in the CESEE region were growing at above 10% year-on-year.

"On the one hand, robust wage growth will help restore some of the purchasing power that households lost due to inflation. By the end of last year, average household wages in real terms recovered enough to bring real wages back to at least their 2019 levels," he said. On the other hand, if wages are growing too fast, this might backfire and re-ignite inflation.

"Our analysis shows that wage growth in the CESEE region at around 4-6% this year would balance the need to restore purchasing power and return inflation back to target levels," Kammer said.