East Europe faces weakening public finance prospects in 2026, Fitch says

BUDAPEST, Dec 9 (Reuters) – East European countries’ public finances are likely to weaken next year, despite a moderate acceleration in economic growth due to rising debt levels and increased political polarisation, Fitch Ratings said on Tuesday.

The European Commission projects Poland and Romania, central Europe’s biggest economies, will run budget deficits of more than 6% of output in 2026, driven by higher defence spending amid the war in Ukraine, as well as generous social policies and wage rises.

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The shortfalls, more than double the EU’s 3% ceiling, are set for a marginal decline in 2027, when Poland is due to hold its next parliamentary election amid a standoff between its nationalist president and the pro-EU ruling coalition.

“The region’s public finances will continue to weaken in the context of increased domestic political uncertainty and high geopolitical risks,” Fitch Ratings said.

“Sovereigns in central and eastern Europe (CEE) face increasing policy trade-offs to rein in large fiscal deficits, rising government debt and debt servicing costs, while domestic politics also increase the challenges for fiscal consolidation.”

Fitch cut its outlook on Hungary’s credit rating to “negative” from “stable” last week on a weakening trajectory for public finances amid large-scale spending by Prime Minister Viktor Orban ahead of a 2026 parliamentary election.Fitch said growth would likely accelerate in the export-reliant region next year, but risks could emerge from a still uncertain outlook for U.S. tariff policy and its impact on business sentiment, or a slower take-up of EU funds.

It said most countries in the CEE region would see higher deficit levels in 2026 compared with 2024.

“The geopolitical risks for the region remain high given the continued war in Ukraine, concerns about U.S. commitment to NATO and the reportedly increased hybrid activity by Russia against EU/NATO members,” it said.

Reporting by Gergely Szakacs; Editing by Sharon Singleton

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