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Political risks on the rise but no impact yet on local businesses

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With the wave of ongoing elections in countries such as Hungary, Czech Republic, Poland and Slovenia, Central and Eastern Europe is undergoing a major period of change against the background of economic growth that is still strong. Coface’s political risk index illustrates a diverse picture throughout the region. While social risks are low, due to the favorable macroeconomic situation which is triggering an improvement in household sentiment additionally supported by government measures, the rising trend of populism and concerns over the EU are increasing the global level of political risks.

In general, risk is significantly lower in Central and Eastern European countries (CEE) than in the past. The region is enjoying economic activity which has gained momentum in recent years. Socio-economic indicators used to measure the degree of social frustration have improved. GDP per capita has increased and is now closer to the Western Europe average, unemployment rates have contracted significantly and inflation remains moderate.

Countries in the CEE region are showing different forms and stages of political risk. Hungary and Poland are mentioned the most often, with the EU and international institutions showing concerns on respecting the rule of law. In the Czech Republic, where the ANO party won the latest elections in October 2017, its leader Andrej Babis, appears to be following a similar path to those of the governing parties in Hungary and Poland. Although it has not yet happened, the Czech Republic is being faced with political turmoil since the no-confidence vote in January this year. The Prime Minister is trying to form a new coalition government, with support from parliament. Both Slovakia and Slovenia recently experienced resignations of their prime ministers.

The polarization of society in the CEE is witnessed by the number of civilian demonstrations. “Various changes affecting the situation of inhabitants and the political landscape have led to a number of demonstrations across these countries”, analyses Grzegorz Sielewicz, Regional Economist Central & Eastern Europe and author of the study “The singularity of political risk in Central and Eastern Europe”. “Corruption issues which contribute to social dissatisfaction continue to play a role in the CEE region´s political risks, despite countries adopting EU standards and making major improvements in this field, such as setting up anti-bribery watchdogs in many countries.”

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