Central Europe and the Baltic states

Croatia country assessment 2025-26

Highlights

Economic growth is robust in 2025. Real gross domestic product (GDP) growth expanded by 3.2 per cent year on year in the first half of 2025, driven by resilient domestic demand, inventory accumulation and healthy exports.
Croatia is progressing well with its Recovery and Resilience Plan (RRP). In mid-2025 the government submitted the seventh RRP payment request, matching the best performers in this regard in the European Union (EU).
A new law on state-owned enterprises (SOEs) was adopted. The new law, adopted in July 2025, meets key RRP targets and requirements to accede to the Organisation for Economic Co-operation and Development (OECD).

Key priorities for 2026

The government should ensure that most projects under the RRP are finalised on time. With the August 2026 deadline looming, the authorities need to mobilise resources and capacity to reach the 279 remaining milestones out of a total of 436.
Implementation of several e-government tools needs to be finalised. As part of the RRP, the government has committed to introducing digitised tools into the judiciary, tax administration and pensions. These tools should be fully implemented.
Administrative barriers to a faster rollout of renewable energy need to be reduced. Despite notable progress in streamlining the regulatory framework for renewables, the authorities still need to address issues such as grid connection fees to fully enable private investment in the sector.

Croatia country assessment 2025-26

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Czechia country assessment 2025-26

Highlights

The economy has entered an expansionary phase. After real gross domestic product (GDP) expanded by just 1.2 per cent in 2024, growth accelerated to 2.4 per cent year on year in the first half of 2025, supported by domestic consumption and robust exports.
Changes to regulations were made to scale up renewable energy. Key laws have been amended to streamline renewable energy investments.
Pension reform was adopted, improving the long-term pension deficit. The new law is expected to lead to savings of up to 2 per cent of GDP, albeit only towards 2060.

Key priorities for 2026

The authorities should accelerate the pace of European Union (EU) funds absorption. Amid a slowdown in the total absorption of EU funding so far in 2025, the authorities need to ensure that most allocated funds are used, especially those under the expiring Recovery and Resilience Facility (RRF).
Further changes to energy sector regulations are needed to fully align with EU practices. In addition to the positive measures adopted in 2025 the authorities need to introduce and support energy communities and enhance grid capacity.
Measures are needed to enhance innovation capacity and support more innovative output. Despite some progress in recent years, Czechia’s innovation ecosystem would benefit from streamlining its governance model and offering more support for risk capital and small and medium-sized enterprise research and development.

Czechia country assessment 2025-26

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Estonia country assessment 2025-26

Highlights

The economy has stabilised, but recovery is sluggish. Consumption is the main driver behind the return to economic growth in 2025, but investment and exports remain weak, and trade tensions and tax distortions are clouding the outlook.
Estonia and the other Baltic states are now fully plugged into Europe’s power grid. The €1.6 billion project, 75 per cent funded by the European Union (EU), has ended the region’s reliance on Russia’s BRELL system after 17 years. The shift is strengthening energy security and clears the way for more renewables.
The government is boosting connectivity and military expenditure. A €932 million infrastructure plan targets key highways and Rail Baltica links, funded by taxes, EU support and a new vehicle levy, but long‑term funding gaps remain.

Key priorities for 2026

The authorities should speed up the green transition and modernise infrastructure by cutting dependence on oil shale through a rapid scale-up of renewables, storage and grid resilience. Key aims include transport decarbonisation via railway electrification, enhanced incentives for cleaner vehicles, and an integrated public transit system, alongside expanded targeted renovation schemes to curb energy poverty and ensure inclusivity.
A wider tax base, especially on property and capital levies, would help keep fiscal consolidation on track. This would allow the authorities to channel resources towards strategic priorities such as defence, healthcare and long-term care, without stifling growth or stoking inflation.
Further investment is needed in research, financing and skills. The authorities should step up applied research funding and widen access for small and medium-sized enterprises (SMEs) to equity and venture capital, particularly in remote regions, and prioritise STEM (science, technology, engineering and maths) education to align the workforce with the demands of the digital and green transitions.

Estonia country assessment 2025-26

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Hungary country assessment 2025-26

Highlights

Hungary’s economic activity remains subdued, reflecting weaker investment and the continued partial suspension of European Union (EU) funds. The outlook for recovery depends on strengthening domestic demand, while fiscal pressures and trade frictions present ongoing challenges.
The diversification of energy imports is progressing. Kazakh crude oil now flows through the Druzhba corridor and liquefied natural gas (LNG) access is expanding via the Krk terminal in Croatia, alongside new links to Romania and Serbia. At the same time, existing long-term gas contracts and the €12 billion Paks II project underscore Russia’s ongoing role in Hungary’s energy mix, despite sustained EU and US efforts to encourage diversification.
A new housing scheme is spurring an affordability drive. The state-funded subsidy scheme fixes rates at 3 per cent, with capped loan amounts and property values, offering buyers modest downpayments. The authorities hope that tax gains will offset the cost of the scheme.

Key priorities for 2026

The authorities should strengthen the regulatory framework to boost competition in goods and services. A new commitment is needed to ensure that legal frameworks remain consistent with single-market principles, avoiding discretionary practices and undue market interventions, while limiting emergency measures to those that are strictly necessary.
Efforts to diversify away from Russian energy remain essential, consistent with the EU’s REPowerEU goal of ending such dependence by 2027. This will involve prioritising regional LNG access, cross‑border interconnections, renewables build‑out and ambitious efficiency gains. Flexible contracts and a robust diversification plan with clear milestones will help unlock EU funds and bolster long‑term energy security.
Tighter fiscal policy is needed, with credible measures to meet deficit targets and curb debt growth. The authorities should anchor a fiscal consolidation plan in a transparent medium‑term framework that safeguards priority investment, rebuilds buffers and strengthens credibility through clear rules and consistent communication.

Hungary country assessment 2025-26

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Latvia country assessment 2025-26

Highlights

Growth remains weak, as domestic demand has faltered. Investment has been boosted in 2025 by public works and increased spending on defence, but consumers are hesitant to spend, despite rising wages, and lingering trade frictions are clouding growth prospects even after tariff relief.
Defence spending is rising sharply. The government is targeting total defence spending of 5 per cent of gross domestic product (GDP) by 2026, funded by borrowings of €8.4 billion from the European Security Action Fund, an increase in the government deficit and the sale of stakes in state-owned firms.
A major reform push is targeting excessive bureaucracy. The government has backed a 21-point plan to digitise services, cut reporting and speed up approvals.

Key priorities for 2026

The government should press ahead with structural reforms to strengthen innovation, attract foreign investment and improve the business climate. Excessive bureaucracy remains a drag on competitiveness, according to business surveys. The ongoing 21-point government programme, approved in April 2025, marks a promising step in the right direction, with further progress expected.
Labour shortages in the STEM (science, technology, engineering and maths), green and care sectors need to be addressed through targeted upskilling and better working conditions. These sectors face rising demand and demographic pressures, risking service gaps and economic blockages. Strengthening pensions, healthcare and housing access will support inclusive growth without compromising fiscal discipline.
The government needs to mobilise additional revenue and improve public spending efficiency to meet rising defence and energy security demands. With ageing demographics and geopolitical pressures, fiscal resilience is critical, yet value-added tax (VAT) gaps and tax exemptions persist. Streamlining procurement and curbing rent-seeking will free up resources for strategic investment.

Latvia country assessment 2025-26

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Lithuania country assessment 2025-26

Highlights

Growth has held firm in 2025 as domestic demand powers ahead. Investment is rebounding strongly, led by private-sector and European Union (EU) funds, but the manufacturing sector is facing rising costs and weaker external markets.
A tax overhaul is raising levies on wealth and income. Parliament has approved a progressive three‑tier income tax system and modifications to property levies, and has amended other taxes, aiming to broaden the tax base and fund greater defence spending through higher revenues.
Pension changes may boost domestic demand, but could jeopardise long-term savings. Under new measures passed by parliament, automatic enrolment has ended and a two-year opt-out period enables participants to reclaim savings. The change may shrink the investor base, and it diverges from the European Commission’s push for auto-enrolment.

Key priorities for 2026

The authorities should reinforce the multi-pillar pension system and reconsider the proposed pension reform. Ending automatic enrolment and enabling early withdrawals, as envisaged under the current reform approved by parliament, could erode savings, weaken capital markets, and heighten fiscal and retirement risks.
Further efforts are needed to safeguard fiscal sustainability while funding higher defence spending. Defence allocations are set to reach 5 to 6 per cent of gross domestic product (GDP) by 2030, and the June 2025 tax overhaul supports this goal, in line with advice from the International Monetary Fund.
Offshore wind-farm development should be increased. Two 700 MW projects are already in the pipeline, positioning the country to lead the Baltic energy transition and attract green investment beyond 2030.

Lithuania country assessment 2025-26

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Poland country assessment 2025-26

Highlights

The economy is gaining momentum amid an historically elevated government deficit. Robust consumption and investment backed by the European Union (EU) are driving strong economic growth amid higher defence spending and ongoing trade tensions. Easing inflation and lower nominal interest rates are further bolstering the outlook.
Renewables have periodically overtaken coal in the energy mix as the green shift accelerates. A draft national energy plan aims to achieve substantial emissions cuts, a rapid exit from coal and cheaper electricity through renewables, improved storage and grid upgrades.
An independent oversight body has been set up to enforce fiscal discipline. The new fiscal council will review macroeconomic assumptions and require ministers to explain any deviations from its opinions.

Key priorities for 2026

The government should reduce the fiscal deficit while respecting critical national priorities. The EU’s excessive deficit procedure underscores the difficulty of maintaining discipline in this regard amid rising defence, infrastructure, healthcare and energy transition costs. Nevertheless, to avoid a rapid increase in public debt the government should be more efficient and switch to more selective and better targeted social spending.
Further efforts are needed to deepen capital markets and expand risk‑sharing tools. Increasing levels of private investment, which lag those of regional peers, and mobilising domestic savings are essential for growth and innovation.
The authorities should simplify permitting for renewable energy projects. The current deadlock over onshore wind-farm distancing rules highlights the urgency of streamlining regulations to accelerate green investments, which in the long term will deliver lower energy costs and reduced exposure to carbon pricing.

Poland country assessment 2025-26

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Slovak Republic country assessment 2025-26

Highlights

The momentum of early 2025 has waned and the economy is stalling. Higher taxes and trade tensions have weakened demand, with tariffs adversely affecting the car industry, in particular. Fiscal strains have intensified.
Efforts to cut dependence on Russian gas have faltered. The Slovak Republic is negotiating new supply routes with other countries in advance of a European Union (EU) deadline to phase out gas imports from Russia by 2028.
Pension funds have been given leeway to back local infrastructure. Thanks to a fast-tracked reform procedure, private pension funds can now channel some of the €16.6 billion in assets they manage into housing, transport and green projects to spur growth.

Key priorities for 2026

The authorities should accelerate the absorption of EU funds under the Recovery and Resilience Plan (RRP) and the Cohesion Policy for 2021-27 by prioritising timely project delivery. With only 9.1 per cent of cohesion funding drawn down by the end of July 2025, further delays risk undermining growth and the achievement of fiscal targets. Swift action is essential to meet milestones and secure future allocations.
The government needs to step up efforts to secure alternative gas contracts by 2026 and accelerate investment in renewables and modern grids. This will help improve energy resilience in light of EU plans to end Russian gas imports by 2028.
Measures to increase defence spending should be balanced against the need to reduce the country’s excessive deficit. Steps in this direction would balance security needs with fiscal prudence, using the EU’s escape clause for targeted investment.

Slovak Republic country assessment 2025-26

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Slovenia country assessment 2025-26

Highlights

The economy is stagnating. In the first half of 2025 real gross domestic product (GDP) grew by just 0.1 per cent year on year. This substantial drop from the 1.7 per cent growth rate recorded in 2024 was caused by weaker investment and exports.
Public pay reform was adopted, raising average public wages. Besides provisions to strengthen links between performance and promotion, the reform includes significant pay rises, especially in the lower wage brackets.
Long-term care reform is under way. Slovenia has implemented an increase in social security contributions to finance the expansion of long-term care services and improve their sustainability.

Key priorities for 2026

Capacity to implement remaining Recovery and Resilience Plan (RRP) investments needs to be strengthened. Given that all milestones and targets in the RRP have to be reached by August 2026, the government should allocate enough resources and capacity to accelerate the implementation of infrastructure investments and ensure they are completed in time.
Developing alternative financing can support innovation. Despite its relatively high level of innovation activities, Slovenia lags its peers in the venture capital ecosystem and in terms of the participation of institutional and retail investors in equity funding.
Post-flood reconstruction funding should be stepped up. Two years after the devastating flash floods that affected a large part of the country, public spending on reconstruction remains below initial expectations, despite strong absorption of European Union (EU) Solidarity Fund assistance, mainly owing to capacity constraints and permitting, procurement and procedural bottlenecks.

Slovenia country assessment 2025-26

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