Investment Institute
Macroeconomics

Emerging Europe – Trapped

KEY POINTS
US trade policies could weigh on the region via indirect effects on Eurozone growth and the euro
The region’s geostrategic importance has increased, independent of the US election outcome, through increased reliance and cooperation with the EU

Potential ricochet from US protectionism

Protectionist temptations will be closely watched after the US election, again separating a Harris/Trump outcome. Central and Eastern European (CEE) countries rank very highly in terms of trade openness. In 2023, trade (exports and imports) accounted for as much as 175% of GDP in Slovakia and close to Singapore levels of 100%-120% for the Baltics. Among the bigger economies in the region, Poland’s trade is still more than 90% of GDP, compared to only 25%-40% of GDP in China, India, Indonesia, Brazil or Russia. The European Union (EU) is by far the CEE’s largest trading partner, accounting for 60%-80% of total exports, while the 3%-5% export share to the US is still above China’s 1%. But a further rise in US protectionism could affect the region indirectly via the effect on the Eurozone economy and the euro, rather than directly or via its impact on China.


Nervous neighbours

Yet beyond trade concerns, a second mandate for Donald Trump brings risks to financial and military assistance in the region. It remains to be seen whether Trump would end US aid to Ukraine if elected as part of a “settlement in a day”. Still, it appears increasingly clear that Ukraine and the whole CEE region would have to rely more on Europe – and itself – for security. Most of these countries perceive Russia’s Ukraine invasion as an existential threat and have stepped up defence spending by 100%-270% since 2014. The national military budget reached 4% of GDP in Poland, while Latvia aims to reach 3% of GDP by 2027 and most CEE countries exceed the North Atlantic Treaty Organization (NATO) 2% of GDP pledge, a level that Trump has suggested could grant US protection “from a Russian invasion”. However, Trump is also supported by populist leaders such as in Hungary and Slovakia, whose pro-Moscow tilt continues to stir frictions within the EU. However, these economies also seem to be a gateway for Chinese investments into the EU, which in turn could bring trade tensions with the EU and US alike.

Download the PDF to read the full article
Download the full article (534.5 KB)

    Disclaimer

    The information on this website is intended for investors domiciled in Switzerland.

    AXA Investment Managers Switzerland Ltd (AXA IM) is not liable for unauthorised use of the website.

    This website is for advertising and informational purpose only. The published information and expression of opinions are provided for personal use only. The information, data, figures, opinions, statements, analyses, forecasts, simulations, concepts and other data provided by AXA IM in this document are based on our knowledge and experience at the time of preparation and are subject to change without notice.

    AXA IM excludes any warranty (explicit or implicit) for the accuracy, completeness and up-to-dateness of the published information and expressions of opinion. In particular, AXA IM is not obliged to remove information that is no longer up to date or to expressly mark it a such. To the extent that the data contained in this document originates from third parties, AXA IM is not responsible for the accuracy, completeness, up-to-dateness and appropriateness of such data, even if only such data is used that is deemed to be reliable.

    The information on the website of AXA IM does not constitute a decision aid for economic, legal, tax or other advisory questions, nor may investment or other decisions be made solely on the basis of this information. Before any investment decision is made, detailed advice should be obtained that is geared to the client's situation.

    Past performance or returns are neither a guarantee nor an indicator of the future performance or investment returns. The value and return on an investment is not guaranteed. It can rise and fall and investors may even incur a total loss.

    AXA Investment Managers Switzerland Ltd.