Central Europe faces fiscal crunch amid rising tariffs – Moody’s

Central Europe’s ability to cushion the economic blow from rising global tariffs is limited by high deficits and shrinking fiscal space, Moody’s Analytics said, warning the export-reliant region must urgently seek new growth drivers.

Despite low direct exposure to the US, countries like Slovakia and Poland remain deeply tied to global trade, with export shares far above the EU average. Tariffs and growing isolationism, especially from the US, have worsened recession risks in the Czech Republic, Romania and Hungary, said Gaurav Ganguly, head of EMEA research at Moody’s Analytics.

“It is very important for these countries to find new export markets, to find new partners, and to find new engines for growth,” he told Reuters, citing trade alliances, foreign investment and new industries as key options.

High defence spending, the war in Ukraine, and election-related outlays have pushed deficits higher across the region. Romania’s shortfall hit 9.3 per cent of GDP in 2023, while Poland and Romania recorded the EU’s largest budget gaps last year.

Ganguly said Romania’s fiscal outlook is especially concerning, projecting a deficit of 8.4 per cent in 2025 unless urgent action is taken. Poland’s debt servicing costs have also doubled since 2021, raising questions over its deficit targets.

Hungary, despite trimming its deficit last year, is pursuing tax cuts ahead of elections, risking further strain on public finances.

Attribution: Reuters

Subediting: M. S. Salama