BEYOND REAL ESTATE ECONOMY
18 April 2025
Grzegorz Sielewicz Head of Economic & Market Insights | CEE grzegorz.sielewicz@colliers.com
CEE: Spring forward, interest rates fall
The European Central Bank (ECB) has continued its easing cycle and lowered interestratesby25bpsatthelatestmeeting. While the fight against inflation has not yet been declared won in Central and Eastern Europe (CEE), regional central banks will followhoweveratadifferentpace
Eurozone: Cut amid global tariff turmoil
On April 17, 2025, the ECB lowered its key interest rates by 25 basis points, marking the seventh consecutive cut since June 2024. The move was enabled by a decline of headline (2.2% year-on-year) and core inflation (2.4%) in March2025,withservices inflation easing notably.At the same time, rising global trade tensions, particularly US tariffs on European exports, have clouded economic prospects. The ECB highlighted "exceptional uncertainty" stemming from volatile financial markets and weakened business and consumer confidence, which threaten to tighten financing conditions and suppress investment. A stronger euro and lower energy prices provided disinflationary support, offsetting risks from trade-related currency fluctuations. However, the exact magnitude of tariffs is still uncertain as the trade war could evolve. So far it could be estimated that tariffs could reduce demand (a disinflationary force), while supply-chain disruptions might reignite price pressures. Expansionary fiscal measures in Germany (and Italy recently), includingdefense and infrastructurespending, could counterbalance monetary easing. Colliers expects that the ECB will implement further rate cuts in June and September and the deposit rate would decrease from 2.25% currently to 1.75%. If tariffs are maintained or tightened, even more aggressive monetary easing would be possible.
As a eurozone member, Slovakia is directly impacted by the ECB’s decision of the rate cut potentially stimulating investments. However, the country’s heavy reliance on
exports (accounting for ~90% of GDP)exposes itto tariffrelated disruptions. The Slovak economic recovery could be limited by US tariffs targeting also machinery and electrical equipment (key Slovak exports). Price pressures made inflation growing to 4% in March 2025, i.e. the highest level since the beginning of 2024.
Poland: A dovish turn anticipates rate cuts
Poland has recently become the focal point of monetary policy discussions in the region. The National Bank of Poland’s (NBP) Governor has surprised markets with an unexpectedly dovish tone. After maintaining its benchmark interest rate at 5.75% for over a year, the NBP now hints at potential rate cuts as early as May 2025. This shift reflects a more optimistic inflation outlook, supported by revised CPI weights and lower energy price assumptions.
Inflation in Poland has moderated to 4.9% in March 2025, but it remains above the central bank’s target range of 2.5% with ±1 percentage point tolerance band. Food prices and services inflation continue to exert upward pressure, with core inflation decreasing slightly over last months. However, the NBP expects inflation to returnto its target range by late 2025, pavingtheway for
a more accommodative stance. Colliers anticipates rate cuts of at least 100 basis points in the remaining of this year, provided inflationary risks remain contained. Another factor of concern for the Monetary Policy Council, i.e. persistent wage growth has softenedto onedigit levels from above 13% recorded in both 2023 and 2024. According to Colliers forecasts, nominal wage growth will weaken to 7.6% this year from. Furthermore, thestrongPolishcurrencyamongmoredovishapproach of Council could mean that the target interest rate is even lower thanexpectedbefore andit couldreach3.5% at the end of 2026.
Czechia: Easing amid lingering risks
In the Czech Republic, monetary policy has already entered an easing phase. The Czech National Bank (CNB) has cut its two-week repo rate by a cumulative 325 basis points since late 2023, bringing it down to 3.75% by early 2025. Yet, despite these efforts, the CNB recently paused its rate-cutting cycle due to upward revisions in its inflation forecasts for this year.
Inflation in Czechia fell significantly throughout 2024 but is now projected to average 2.4% in 2025 – slightly above the central bank’s target of 2%. This adjustment reflects ongoing wage pressures in the services sector and external risks stemming from Germany’s fiscal stimulus measures, which could spill over into Czech exports and complicate disinflation efforts.
The Czech economy has shown signs of recovery, with GDP growth projected to reach 2.2% in 2025. Domestic demand is expected to drive this growth, supported by rising real wages and improving consumer sentiment. However, weak external demand and structural challenges in key industries may limit the pace of recovery. While further rate cuts are likely later this year – potentially up to 75 basis points – the CNB must tread carefully to avoid undermining price stability or weakening the koruna excessively.
Hungary: High rates persist amid challenges
Hungary stands out in the region for its persistently high interest rates and elevated inflation levels. The National Bank of Hungary (NBH) has kept its base rate at 6.50% since mid-2024, prioritizing real positive rates to limit inflation and stabilize the forint. Inflation increased to 5.6% in February 2025, however then dropped to 4.7% in March 2025 with core inflation also slowing.
The Hungarian economy emerged from a technical recession in late 2024 but faces significant headwinds that could dampen its recovery prospects. EU funds allocated to Hungary remain frozen due to political disputes, limiting public investment and weighing on the GDP growth forecast for 2025 (1.9%).
The monetary easing in the remaining part of 2025 is
unlikely at this stage. Government interventions in food pricing have temporarily eased inflationary pressures but risk distorting market dynamics if extended beyond May. Sustained disinflation trends could trigger interest rate cuts.
Romania: Political uncertainty clouds monetary policy outlook
Romania presents a unique case within the region due to its combination of fiscal challenges and political uncertainty ahead of repeat presidential elections in May 2025. The National Bank of Romania (NBR) has maintained its benchmark interest rate at 6.50% since August 2024 despite moderating inflation trends.
Inflation reached 4.9% in March 2025 and it is projected to decline since the second half of this year as energy prices stabilize and fiscal tightening measures take effect. However, underlying pressures persist, particularly in services inflation driven by strong wage growth in the public sector.
The upcoming elections addthe uncertainty for monetary policy decisions while economic growthremains subdued but is expected to pick up gradually over the next two yearsasEUrecoveryfundsareabsorbedmoreeffectively. For now, limited rate cuts could be anticipated – likely no more than 75 basis points by year-end if political stability improves and fiscal risks are contained.
Bulgaria: Easing rates amid fiscal expansion
Bulgaria’s monetary policy and inflation trajectory reflect a delicate balancing act between domestic economic pressures and the imperative to meet eurozone accession criteria. The Bulgarian National Bank (BNB) has maintained a cautious approach, gradually reducing its benchmark interest rate from a peak of 3.8% in March 2024 to 2.39% by April 2025. Inflation rate remained elevated at 4% in March 2025 marking the highest level since December 2023. The BNB’s incremental rate cuts contrast sharply with fiscal loosening that complicates monetary transmission mechanisms, as increased liquidity from bondissuancesdampenstheimpact ofrate adjustments on private-sector lending. Bulgaria’s eurozone ambitions remain a cornerstone of its economic policy, despite various views of political parties. If inflation converges toward 2% by late, Bulgaria could emerge as a regional outlier, joining the eurozone amid a broader CEE trend of monetary divergence.
Impact on CEE commercial real estate
In those countries likely to be prompt with interest rate cuts, reduced borrowing costs will stimulate investment and create more favourable financing conditions for commercial real estate (CRE). Even in non-euro regional countries, the ECB moves are also crucial for CRE
investments. If geopolitical and trade risks do not significantly dampen investor sentiment, lower financing costs and stronger demand for warehousing (driven by nearshoringtrends)couldtrigger increased investment in logistics. Poland and Czechia, with their strategic locations, are well-positioned to attract capital for industrial parks and data centers. European CRE, including CEE, may benefit as investors seek to diversify away from the unpredictability of the US market. The residential sector, particularly build-to-rent and student housing, is poised for expansion due to housing shortages and demographic shifts in the CEE region. In the office market, prime assets in capital cities like Warsaw and Prague may see renewed interest as investors target high-quality, energy-efficient properties, while retrofitting of older buildings is likely to accelerate. Last but not least, consumer confidence, supported by growingwagesinCEEcountries,couldfurtherreviveretail and hospitality investments – a trend already observed last year.