"VIENNA. The previously well-oiled growth engine in Eastern Europe is losing its sync. It's not just the economic experts at Austria's Erste Group who have lowered their economic expectations. This particularly affects Hungary, says analyst Katarzyna Rzentarzewska. But in Romania, Slovakia, Serbia, and Slovenia, the growth rates for 2025 have also been revised downwards.
Economists at ING Bank attest that Poland, which is considered a growth engine with an economic boost of probably more than three percent this year, is a "land of economic miracles." But they also write: "The current sources of growth have been exhausted." Changes in politics and companies are needed "to build a new Polish growth model." The consequences of the political shift to the right, which has now also affected Poland with the election of Karol Nawrocki as president, are also adding to the problem. Poland's short-term growth prospects remain unchanged, "but the country's policy mix could be unfavorable due to loose fiscal measures and a restrictive monetary policy."
The newly elected right-wing conservative president is expected to sabotage the reform efforts of Donald Tusk's center-left coalition (KO), as his predecessor did. Commerzbank analyst Tatha Ghose sees the more restrictive interest rate policy announced by National Bank Governor Adam Glapinski, a PiS supporter, despite falling inflation after the election as evidence "that the Polish National Bank's monetary policy is becoming political again." Glapinski is "unlikely to support the ailing KO government if he can find a reason not to do so."
Poland is not alone in halting interest rate cuts at the 5.25 percent level.
In the Czech Republic, the central bank has temporarily waived further reductions in the key interest rate due to potential inflation risks. However, the mark here is 3.5 percent. The economy has recovered with growth of around 2 percent and has emancipated itself somewhat from its overpowering German neighbor. Politically, the country is leaning back to the right. All polls predict a victory for former Prime Minister and ANO chairman Andrej Babis, a right-wing populist and EU critic, in the fall election.
Hungary's weak growth demonstrates that nationalization and the politicization of economic relations are not good for the economy. In neighboring Slovakia, where left-wing populist and Putin visitor Robert Fico governs, companies surveyed by the Chamber of Commerce and Industry also assess the economic situation as "predominantly negative." They describe their own company's business expectations as "poor" for the second year in a row. "Sentiment among European investors in Slovakia remains noticeably subdued," it says.
The assessment has been similar for months in the Romanian capital, Bucharest, where the newly elected left-liberal and pro-EU President Nicusor Dan must first establish a functioning government. The year-long election campaign, canceled and postponed presidential elections, and the departure of old political elites have unsettled businesses and consumers, shaken the economy, and driven the budget deficit to 9.3 percent of gross domestic product. The EU is demanding budget consolidation, and the International Monetary Fund is pushing for tax increases. Growth stagnated in the first quarter.
Investors had suspected that things would be bad. Figures from the Vienna Institute for International Economic Studies (WIIW) on foreign direct investment confirm this. "Romania appears to be losing its attractiveness for foreign investors," says WIIW economist Olga Pindyuk. At €5.7 billion, growth in Romania last year was the weakest since 2021. Excluding debt securities and the reinvestment of profits generated locally, just €272 million of "fresh" money remained. After all, this balance sheet is positive, unlike in Hungary – where, taking into account the sharp increase in debt instruments and the reinvestment of profits, a capital outflow of €3.6 billion was recorded.
Globally, 2024 was not a good year for direct investment, with growth remaining eight percent below the previous year's level according to United Nations calculations. However, in Central and Eastern Europe, the decline was three times greater at 24 percent – after a good fifth of decline the previous year. Bucking the trend, only Turkey and the Western Balkan countries, Serbia, Bosnia-Hercegovina, Kosovo, North Macedonia, Montenegro, and Albania, recorded growth.
Poland remained unchallenged with €13.7 billion, leading champion of direct investments. However, this was only half of the previous year's figure. Also striking was the 38 percent decline to €2.8 billion in Bulgaria, which is scheduled to join the euro in 2026. In Central and Eastern Europe, only Lithuania, the Czech Republic, Croatia, and Slovakia were able to increase foreign investment compared to the previous year.
The data can be influenced by individual large-scale projects – especially in small countries. However, long-term series show a downward trend. Both the number of announced new projects and the capital commitments made for them are pointing downwards. Moreover, both indicators fell to their lowest level in five years in the first quarter of 2025. The announced greenfield investments "indicate increasing pessimism among investors," Pindyuk analyzes.
The decline began last year but then intensified in 2025. Announced greenfield projects shrank by 26 percent year-on-year, and the capital committed for them "fell even faster, by 55 percent."
When foreign investors did invest, they did so primarily in the renewable energy, real estate, energy, and automotive sectors.
German and Austrian investors, who were long the most important financiers in the region and maintain by far the largest capital stock, are withdrawing. According to the economist, the number of their greenfield projects fell by three points to 21 percent since the second quarter of 2024, and their investments now account for only eight percent of the capital committed to the region.
The data also points to another surprising fact. China, which had distinguished itself with investments in the Balkans and Eastern Europe as part of its "Belt and Road Initiative," is now conspicuously holding back. Although the number of committed projects fell by only four percent, Chinese investors are now less able to afford it. Committed capital shrank by 48 percent. Pindyuk summarizes soberly: "In the last four quarters, China appears to have begun to lose interest in investing in the region." Geopolitical reasons are increasingly determining investments, overriding economic arguments, he says. However, the latent growth weakness of Germany and China is likely also playing a role in the decline in direct investment – as are uncertainties about international economic and trade policy in general." [1]
This assessment of the current situation in Eastern Europe contains some points that are supported by data and others that require closer examination:
Politically, Eastern Europe is shifting to the right:
Supported: Several sources confirm a trend of right-wing and far-right parties gaining ground in Europe, including within Eastern Europe.
Right-wing populists are reportedly in government or supporting ruling coalitions in various Eastern European countries such as Croatia, Finland, Hungary, Slovakia, and Sweden.
The European Parliament elections in 2024 also saw a shift towards the right, with the center-right European People's Party (EPP) securing the most seats and the far-right Patriots for Europe group also making significant gains.
The economy is no longer doing well:
Mixed: The statement that the economy is "no longer doing well" in Eastern Europe is not entirely accurate according to the data.
Some sources indicate that Central and Eastern European (CEE) economies are experiencing positive growth dynamics, even outpacing Western Europe in some instances. For example, Poland is expected to lead growth among Eastern EU member states.
Factors contributing to this growth include robust foreign direct investment (FDI), attractiveness for near-shoring activities, and strong private consumption driven by rising real wages.
However, the region faces several challenges, including high inflation in the past, rising labor costs, potential trade conflicts, geopolitical tensions, and demographic decline.
Now investors are distancing themselves – even those from China:
Mixed: While some sources indicate that Western investors may be relatively unfamiliar with Eastern European companies, the overall trend doesn't support the claim that investors are largely distancing themselves.
In fact, the commercial real estate sector in CEE saw a significant rebound in Q1 2025, with total investment volumes across the region growing substantially year-on-year.
Chinese investment in Europe actually increased in 2024, driven by projects in countries like Hungary. Although the overall Chinese investment footprint in Europe remains limited compared to other investment flows, it's not accurate to say they are distancing themselves.
However, future Chinese EV investment momentum in Europe is uncertain, and there are concerns about potential declines in other sectors.
In summary, while the rise of right-wing political movements in Eastern Europe is a notable trend, the economic situation is more nuanced, exhibiting both strong growth drivers and significant challenges. The claim that investors are broadly distancing themselves, including those from China, is not supported by the available information; indeed, some investment areas are showing positive trends.
1. Alarmsignale aus Osteuropa: Politisch rückt der Osten Europas nach rechts, wirtschaftlich läuft es nicht mehr rund, und jetzt gehen Investoren auf Distanz - sogar die aus China. Frankfurter Allgemeine Zeitung; Frankfurt. 17 June 2025: 17.
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