Hi, this is Andrea Dudik in Prague. Welcome to our weekly newsletter on what’s shaping economics and investments from the Baltic Sea to the Balkans. You can subscribe here.

Taking a Toll

Serbia has been rocked by demonstrations against Aleksandar Vucic for 10 months now, and they don’t show any sign of going away. Protesters allege the president undermines democracy, allows corruption to flourish and they want him to call a snap election.

The unrest grew increasingly violent over the summer, but it hasn’t appeared to hurt Vucic in opinion polls. What it has done, though, is clouded the economic outlook and hurt foreign direct investment, according to the central bank. FDI was down 40% in the first half of the year, while gross domestic product is now forecast to rise 2.75% in 2025 after a second downward revision. 

That poses a problem for Serbia’s leader, who has managed to stay in power for 11 years thanks in part by using his control over much of the executive and legislative bodies to attract investment, particularly from the European Union and China. That helped boost the economic wellbeing of Serbs to the highest in decades, while fostering anger over allegations of graft among Vucic’s circle.

The most revealing element of the protest movement, though, is that it stands in contrast to other anti-government demonstrations in the region: It’s not about faster integration with the EU, it’s about getting rid of Vucic regardless of the political forces that need to do it, as my colleagues Misha Savic and Jasmina Kuzmanovic report.

Student activists interviewed recently in Belgrade said Serbia needs to focus on improving democratic institutions and infrastructure. They see Vucic as an enabler of Europe who has cut business deals to stay in power. They also claim he’s been ineffective in defending Serbia’s stance on Kosovo, something that at the moment is incompatible with EU membership.

For now, Vucic refuses to cave. Indeed, there have been counter protests to defend him and his leadership. He also enjoys the support of EU leaders because he’s a known quantity, according to Western officials. But for now, the impasse continues and the impact — political and economic — will unfold.

Aleksandar Vucic says many of the protests are simply aimed at disrupting Serbia. Photographer: Oliver Bunic/Bloomberg

Around the Region

Ukraine: Kyivstar Group now has a stock market valuation of about $2.5 billion, reflecting a successful debut on the Nasdaq and how the telecoms company is entering what its president calls a new era. 

Estonia: Executives from Europe’s electric-vehicle makers are turning to the Baltic state for something they struggle to find anywhere outside of China: rare-earths magnets. A new $75 million plant is opening in Narva on the Russian border.

Poland: Erste Group Bank’s chief executive officer, Peter Bosek, said a planned banking tax that was unveiled after the Austrian lender agreed to buy a stake in a large Polish lender doesn’t change the basic appeal of the deal. 

Hungary: The EU is weighing sanctions on companies in India and China that are enabling Russia’s oil trade as part of an upcoming package of fresh restrictions, according to people familiar with the matter. The governments in Budapest and Bratislava are concerned about finding alternative supplies. 

Romania: Prosecutors unveiled what they called an elaborate Russian scheme that propelled a fringe pro-Kremlin candidate to electoral victory last year with cyberattacks and disinformation, plunging the nation into political chaos. 

Chart of the Week

The Czech central bank shouldn’t stimulate the economy with more interest rate cuts because persistent inflation risks require caution, Deputy Governor Jan Frait said in an interview ahead of the policy meeting next week. Headline inflation has been kept at acceptable levels by declining energy prices, but he said that won’t last forever. Services inflation, meanwhile, is the main danger.

By the Numbers

• Aspire11, an investment platform backed by Czech financial group Partners, started a €500 million ($588 million) fund to channel pension savings into startups and venture capital.
• Ukraine’s hard-currency bonds climbed to their highest level since March as optimism grows among investors that Ukraine may soon be able to tap a $300 billion pot of frozen Russian assets to fund its war defense. 
• Poland deployed air force jets for the second time in a week because of drones. Residents of six districts near to the Ukrainian border received emergency SMS alerts warning of a threat from the air. A Russian drone was also detected in Romania’s airspace.  

Things to Watch

• Estonia, one of NATO’s biggest spenders on military equipment relative to the size of its economy, will host a defense industry expo.
• The Czech central bank is likely to keep interest rates unchanged as inflation risks return.
• Its counterpart in Hungary, meanwhile, is poised to keep its key interest rate at an EU-high for a 12th month despite a currency rally.

Final Thought

The cyberattack that brought UK-based carmaker Jaguar Land Rover factories to a standstill is rippling through a country whose automotive industry is the backbone of its economy. In Slovakia, the JLR plant will remain shut until Sept. 24. It makes around 130,000 vehicles a year, employs about 4,000 people and supports a wide network of parts makers in the region. The closure means that some of its suppliers had to suspend their own production. While it’s too early to quantify any financial cost, workers have ended up with some unexpected days off.

Jaguar Land Rover makes its Discovery and Defender models in Slovakia. Photographer: Akos Stiller/Bloomberg

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