Elections in the Balkans: Populists are bad for growth

Eastern Europe's economic model as an extended workbench for Western industrial groups has come to an end. During this development cycle, investors placed their factories in countries in Eastern and Central Europe, completely independent of the political orientation of these locations.

In the current cycle of turning to products and services with higher added value, strong private consumption and public investment, the Vienna Institute for International Economic Studies (wiiw) has identified a clear imbalance: Poland, governed by a liberal coalition, continues to boom. Hungary, which has freed itself from the yoke of authoritarian ruler Viktor Orbán, is experiencing economic growth. Countries governed by populist governments are now suffering considerably from economic weakness.

“Countries that rely on technology and greater productivity, for example through automation and digitalization, continue to have a good chance of being economically successful,” says Richard Grieveson, deputy director of wiiw and lead author of the forecast for Poland.

He points to the Polish high-tech industry, which has grown by around 40 percent in the past decade. For Poland, the wiiw expects a 3.7 percent increase in gross domestic product this year - an absolute record in the east of the continent.

And Hungary, which was able to shake off the authoritarian rule of long-term Prime Minister Viktor Orbán in the spring, is also experiencing an economic revival and, according to wiiw, will grow by 1.7 percent this year and by 2.6 percent in 2027.

What is remarkable is “the great confidence shown by investors in the new government of Prime Minister Péter Magyar, which is reflected in the strong appreciation of the national currency, the forint, and the sharp decline in yields on Hungary’s government bonds.” This is what a current communication from the institute says.

The new government is “busy with the political clean-up work after the fall of the Orbán regime and is focusing on improving the functioning of the institutions”.

On the other hand, the consequences of populist politics in the Czech Republic, Slovakia, Bulgaria and Romania can be seen negatively in terms of economic growth if you look at the wiiw's forecasts for this and the next two years. In the Czech Republic, agricultural billionaire and right-wing populist head of government Andrej Babiš and his ANO party quietly lost all 13 attempts to fill senatorial posts in the regular by-election last weekend.

Babiš is relying on EU skepticism under the motto “Czech Republic first”, announced an end to arms deliveries to Ukraine and plans to tighten immigration laws. His right-wing coalition is deliberately pursuing an expansionary spending policy. According to Babiš, the consolidation of state finances explicitly takes priority over state investments. Coal-fired power plants are deliberately kept in operation for longer. The aim is to keep energy prices artificially stable for domestic industry and citizens.

Although the Bulgarian government formally emphasizes membership in the EU and NATO, it is considered extremely Russia-friendly. Critics fear that Bulgaria could be heading towards an autocratic course à la Viktor Orbán. In Romania, the Alliance for the Union of Romanians is calling for a radical departure from the previous pro-Western course in view of collapsing growth forecasts and for massive state support for local companies, which should not be privatized.

In Romania, the parliament dominated by left-wing populists approved the pro-European government of non-party diplomat Luca Niculescu on Tuesday after months of political deadlock. According to wiiw, Romania, Slovakia, the Czech Republic and Bulgaria, which also has a populist government, can expect lower economic growth this year than in 2025.

“Romania is in recession,” concludes the wiiw. Budget consolidation, high inflation and weak purchasing power would dampen consumption. Inflation is decreasing, but remains among the highest in the EU. The institute sees “political uncertainty and high foreign trade deficits” as the biggest problems.

Populist politics have led to a significant increase in national debt in Romania and Bulgaria. The EU Commission has now imposed an active excessive deficit procedure on Bulgaria, requiring the country to implement a formal fiscal consolidation program.

The consequences of populist politics are also noticeable in EU accession candidate Serbia: under the Serbian Progressive Party (SNS) of President Aleksandar Vučić, who wants to be elected head of government on Sunday, the Serbian economy grew more slowly than in the previous decade and lagged behind most countries in the region, according to wiiw in an analysis in the run-up to the parliamentary elections.

Serbia's average annual economic growth was 2.4 percent in the period 2012 to 2025, compared to 4.2 percent in the period 2001 to 2011, said economist Branimir Jovanović in the report "Serbia's Economy under Vučić: Far from a Miracle." Foreign direct investment (FDI) also lagged behind the earlier period.