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 interest rates by 25 bps at the latest meeting. While the fight against inflation has not yet been declared won in Central and Eastern Europe (CEE), regional central banks will follow however at a different pace. 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 March 2025, with services 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), including defense and infrastructure spending, 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
Business
exports (accounting for ~90% of GDP) exposes it to 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 return to its target range by late 2025, paving the way for