Central and Eastern Europe (CEE) is experiencing impressive economic growth dynamics, outpacing that of Western Europe. This momentum is fuelled by robust inbound foreign direct investment (FDI) and the region’s appeal as a destination for near-shoring activities.
So why is this region so attractive?
Economic landscape
Over the past 40 years, there have been major social and economic shifts across the CEE region, which has a multicultural background as well as an innovative culture and skilled workforce. Economic agents in the region include both multinational companies (MNCs) and local corporates. The Eurozone remains the main trade partner, representing approximately 70% of the region’s imports and exports.
CEE is attracting considerable FDI from new and historical investors: the inbound FDI stock from EMEA is historically significant and stands at EUR700 billion in 2023, while a new universe of investors from APAC contributed with fresh FDI at around EUR50 billion. These investments, along with its competitive workforce and appeal to Western European companies for near-shoring activities, are driving CEE’s real GDP growth pace, already surpassing that of Western Europe. Other notable drivers of economic growth include the continuing impact of EU accession and convergence with other EU economies. The region benefits from EU funded programmes which support infrastructure, transportation, clean and renewable energy projects, and digitalisation, which are improving productivity and GDP growth momentum.
“The traditional European investors from France, Germany, Italy, etc. who invested in the region during the 90s are still very active in CEE; they like the environment, the available human capital, they are well embedded in the supply chain, and we see them continuously investing,” comments Georgi Georgiev, Head of Multinational Corporates Coverage, Central & Eastern Europe, at BNP Paribas. “Meanwhile, recently we observe a completely new set of investors from APAC, mostly Chinese and Korean, establishing a footprint in CEE and most importantly, creating a new ecosystem, linked to the electric vehicle (EV) and electric mobility sector.”
Looking at the macroeconomic climate, the last few years have brought a mix of challenges and growth opportunities, with high inflation – which peaked at 25.9% in Hungary in Q1 2023 – and governments’ growing deficit. However, the region’s economic outlook is still positive, with EU figures predicting GDP growth in Hungary and the Czech Republic to be 1.8% and 2.4% respectively in 2025, compared with 1.5% in the EU. Despite accelerating core inflation in CEE, BNP Paribas expects the underlying disinflation trend to continue, with further interest rate cuts in the region expected in Q4 and 2025.
Direction of travel
While economic performance and standards in CEE are converging with other European economies following accession to the EU, there is still room for further convergence. Given the equalising labour costs in the region, CEE will have to continue with structural reforms to keep its attractiveness for investors.
“Going forward, CEE countries will need to transform out of the previous model of supporting industry in countries like Germany, with more emphasis on producing end products that can compete with goods and services produced in developed countries,” notes Wojciech Stepien, Senior Economist for CEE markets at BNP Paribas Markets 360.
In the meantime, a key question will be how Germany’s economy develops in light of current challenges, including higher energy costs and growing competition from China in areas such as electric vehicles. “While uncertainty remains, our base case is that Germany should see some gradual improvement going forward – and this, in turn, should support exports for the Czech Republic and Hungary,” comments Stepien.
Other notable trends include the low carbon transition, with a significant effort underway to reduce the number of coal-fired power plants and improve the efficiency of the grid. Sustainability is likewise becoming increasingly embedded in the region, with Hungary’s new ESG Act introducing sustainability due diligence and reporting obligations for local companies.
Corporate challenges and priorities
Many multinational and large local corporates in CEE are setting their focus on growing the business, driven in part by recent years of high inflation, which has heightened the need to expand revenue to manage rising costs. Supply chain resilience is another important driver of growth, particularly given the ongoing effects of elevated geopolitical risks.
Among challenges facing companies’ business growth is the exposure to global consumption trends, as MNCs producing in the region sell end-products globally and also the change in local government subsidies. In addition, the CEE region has been impacted by the rise of energy prices, particularly due to its high dependency on Russian oil and gas.
Banking and financial services in Central and Eastern Europe
❝ For companies in CEE, there is a growing need for high-quality support from their banks in a large range of services. CEE is central to the Bank’s strategy within Europe. Our ambition is to grow with our clients in CEE, differentiate our services through quality of execution, and go the extra mile to accompany their business development inside and outside the region. ❞
MNCs in the region tend to be extremely lean and efficient, with centralised cash and foreign exchange management. In particular, the lack of capital controls and standard EU regulations in CEE make it easier to optimise liquidity and treasury operations via cash pools. Likewise, local corporates which are looking to expand overseas are taking advantage of opportunities to organise pooling structures.
But as Georgiev observes, the two types of corporations do have somewhat different banking needs: “MNCs are first and foremost looking for quality of execution, stability and predictability. They want to deal with banks that can deliver quality service in a timely fashion.” Usually they have very good access to capital, and these companies are less likely to seek funding from local banks. “But they do need our support when it comes to typical local transactions related to guarantees, clearing, FX, etc.”
Conversely, while local corporates also expect quality of execution, they are also looking for stable local and international banks with solid capital ratios that can provide lending to support their capital needs. “For local corporates, probably their key considerations are the capacity and flexibility of the bank to accommodate them with the necessary level and desired composition of debt capital,” Georgiev explains.
This also includes access to capital markets: “We also support our clients with access to the debt capital markets (DCM), which helps them diversify the funding sources,” says Georgiev.
Supporting corporate and institutional clients in CEE
BNP Paribas was recently named Best Bank for Financing in CEE by Euromoney, which highlighted the Bank’s powerful franchise across the region.
BNP Paribas CIB is present with local teams in Bulgaria, the Czech Republic, Greece, Hungary, and Romania. The Bank provides transaction banking services, including cash management and trade services, as well as hedging, commodities, FX, and access to the capital markets.
