Economic sentiment in Central and Eastern Europe (CEE) rose in August, indicating a potential acceleration in regional GDP growth to around 2.5% y/y, according to a note published by Nicholas Farr, emerging Europe economist at Capital Economics.

The latest Economic Sentiment Indicators (ESIs) from the European Commission showed improvements in eight of the ten CEE countries monitored by the firm, despite the implementation of a 15% US tariff on EU goods during the month. Declines were only recorded in Latvia and Romania, with the latter likely reflecting the effects of recent fiscal tightening.

“The fall in Romania likely reflects the impact of recent fiscal tightening measures, which we expect to dampen growth over the second half of the year,” Farr said in the note.

Czechia recorded the strongest increase in sentiment, which Farr said suggests that the slowdown in the country’s second-quarter growth was “probably temporary.” The firm’s GDP-weighted ESI for the CEE region as a whole rose from 97.1 in July to 98.4 in August. This level, Farr noted, is consistent with “regional GDP growth of around 2.5% y/y (up from around 2.0% y/y in Q2).”

In addition to improved sentiment, Capital Economics reported that its regionally weighted measure of firms’ selling price expectations remained stable at a six-month high.

“As we recently highlighted here, we think that inflation is likely to remain close to or above the upper bound of central banks’ target ranges over the coming months,” Farr said. “Which will mean that less monetary easing is delivered in the region than most analysts expect.”

The note added that persistent inflation pressures may prevent central banks in the region from moving as quickly on interest rate cuts as previously forecast, complicating efforts to stimulate domestic demand.