By Áron Szászi, Senior Public Affairs Consultant, Grayling Hungary

While geopolitics continues to dominate headlines, from the war in Ukraine to renewed instability and conflict in the Gulf, 2026 will also be defined by a quieter but equally significant shift across Central and Eastern Europe: the restructuring of economic priorities.

Across the region, governments are recalibrating public finances under mounting fiscal pressure. Elevated deficits, slower growth and persistent inflation in several markets are forcing administrations to tighten spending, adjust tax frameworks and seek new revenue sources. The era of expansive fiscal flexibility is giving way to discipline. Yet despite these overlapping challenges, most CEE economies maintain a comparatively solid macroeconomic outlook, supported by gradually recovering growth prospects.

Across much of the region, governments allocate a comparatively lower share of GDP to social protection than the EU average, while directing greater resources toward economic affairs – infrastructure, energy, transport and industrial policy. The result is a relatively leaner welfare model paired with a more interventionist industrial strategy.

At the same time, a structural transformation is underway. Several governments are signalling a gradual reprioritisation toward human infrastructure – education, skills, healthcare and demographic resilience – while industrial policy is being recalibrated in response to shifting global conditions. Slower demand in the automotive sector, particularly in electric vehicles, volatility in energy markets, US pressure to further decouple from Russian energy supplies, and the continued acceleration of the green transition are all reshaping policy incentives.

Notably, defence expenditure has moved from a peripheral budget line to a central strategic priority. All CEE countries now meet or exceed NATO’s 2% benchmark, with several committing to significantly higher targets in the coming years. Importantly, this is not merely an increase in personnel costs – it reflects accelerated procurement, industrial modernisation and the development of domestic defence ecosystems. This shift is reshaping public spending patterns.

Competitiveness remains a defining challenge

Many CEE economies continue to outperform the EU average in growth terms, yet they remain highly exposed to external demand fluctuations, energy prices and global trade conditions. Structural constraints persist: labour shortages, skills gaps, slow digital adoption, regulatory inefficiencies and limited fiscal space to stimulate growth.

Not all countries perform equally on these structural dimensions. In terms of government efficiency as a driver of competitiveness, Czechia stands out as a regional leader, reflecting comparatively strong institutional capacity, policy consistency and regulatory predictability. Regarding business efficiency, Czechia also stands out as the regional frontrunner, supported by comparatively strong productivity fundamentals. Across the rest of the region, however, performance is considerably more uneven, reflecting disparities in labour market effectiveness, financial sector development, management practices and broader societal attitudes toward competitiveness.

For businesses, CEE countries’ evolving economic models present both pressure and opportunity.

Fiscal consolidation may bring tax adjustments, stricter enforcement and reduced public subsidies. Labour market reforms — including the implementation of EU directives — will affect workforce structures and compliance frameworks. At the same time, defence modernisation, infrastructure development, digitalisation and energy diversification create new investment channels and procurement opportunities.

CEE’s growth story is shifting from convergence to resilience

Economic policy is increasingly shaped by security considerations, industrial strategy and long-term sustainability rather than short-term expansion. Public finance choices, regulatory adjustments and sectoral priorities are being filtered through this new strategic lens.

Grayling’s CEE Outlook 2026 examines these economic and fiscal shifts across ten markets, providing insight into how public spending, competitiveness pressures and defence priorities are redefining the region’s business environment.

In 2026, understanding Central and Eastern Europe means understanding how economics and security have become inseparable.

👉 Download the full report to explore what this transformation means for your business.