COMMENT: EU's LNG import ban won’t break Russia, but it will render the sector’s further growth fiendishly hard
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Early third-quarter GDP figures from Central Europe point to a growing divergence between the region’s two largest economies outside Poland, with Czechia accelerating its recovery while Hungary continues to struggle, according to a note by Capital Economics on October 31.
Preliminary data showed that Hungary’s economy stagnated in quarterly terms in the third quarter, delivering annual growth of just 0.6%, below consensus expectations of 0.8%. By contrast, Czechia posted stronger-than-expected growth, with GDP expanding 0.7% quarter-on-quarter, translating to 2.7% y/y — beating the 2.3% forecast.
“These releases do not contain detailed breakdowns,” Nicholas Farr, an emerging Europe economist with Capital Economics, said. “But the press release in Hungary noted that the agricultural sector was a drag on growth, while the release in Czechia suggested the strength there was relatively broad-based.”
The contrast in momentum comes at a time when policymakers across the region are weighing how soon to begin easing monetary policy in the face of elevated inflation and mixed economic signals. Czechia's stronger data is likely to embolden the central bank’s recent hawkish shift, the firm said.
“The strength of the recovery will only reenforce policymakers’ hawkish stance,” Farr wrote. “Unlike other analysts who still expect further interest rate cuts in 2026, we think the Czech easing cycle is over. This data release makes us more confident in that view.”
In Hungary, domestic factors continue to weigh on growth, though an uptick may be on the horizon. Capital Economics expects modest improvements in export demand, particularly as Germany’s GDP growth begins to recover, and notes that fiscal stimulus ahead of elections next year is also likely to boost demand.
“We expect growth in Hungary to pick up over the coming quarters,” Farr said.
However, any economic gains are unlikely to shift the Hungarian central bank’s current stance.
“Given stubborn inflation and concerns around the fiscal stance in Hungary, today’s data is unlikely to bring forward the timing of interest rate cuts in our view,” Farr added.
As both economies respond to evolving conditions in their core export markets and adjust to domestic political and inflation dynamics, the latest data suggest that Czechia is now firmly leading the region’s recovery, while Hungary’s rebound remains delayed and uneven.
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