What a fragile peace means for Central and Eastern Europe

Countries in Central and Eastern Europe (CEE) have been among the most exposed to Russia’s war in Ukraine and will also be impacted by the nature of any ceasefire. Our baseline assumption is for ‘fragile peace’ this year, with a high likelihood of renewed hostilities.

What you will learn:

• Combined with the apparent withdrawal of US security guarantees, a fragile peace would be a net negative outcome for CEE economies. Resumption of hostilities would negate any ceasefire dividend for CEE assets and currencies and trigger a scramble for front-loaded defence spending.
• Conversely, a ‘durable peace’ scenario, which now appears unlikely, would lower geopolitical risk, bolster trade, and reduce energy costs. But it would also lead to the return of Ukrainian refugees, which would hit labour supply in CEE.
• The EU’s re-armament is an economic positive for the CEE – its large industrial sector will benefit from increased defence expenditure, although we expect only modest fiscal multipliers. And with the reliability of NATO in doubt, a stronger and more strategically autonomous EU also offers the CEE some additional protection.