Czech Republic
Foreign trade swung unexpectedly to deficit in November
Hungary
Budget deficit target seems to be at risk
Poland
ERM-2 entry without changing the constitution. A real option or political play?
The Week Ahead
Poland’s and Hungary’s inflation back in target range
Overview
Cautious ECB might bring weakness to Central Europe
Not even the beginning of year changed the fundamental outlook for Central Europe. The first macro figures from both the Czech Republic and Hungary were just other disappointments. The Czech foreign trade and Hungarian industrial output for November posted obviously weaker-than-expected results. They reflected more evidence of what on micro-level became visible in October and November notably that orders in the export-oriented engineering industry were gradually declining, to such an extent that they compelled businesses to cut their output dramatically.
Domestic macroeconomic figures in Central Europe (e.g., inflation data in Hungary and Poland) will be closely watched this week, but it is the ECB meeting that will stir the entire region. We are afraid that the European Central Bank may not accommodate the market, in terms of another rate cut, this time. A less dovish action by the ECB might subsequently have negative consequences, particularly for the zloty and the Czech koruna. Both currencies (unlike the forint) maintained their positions at the beginning of the year, but the combination of the ECB’s less accommodating approach, low domestic inflation, and the implicitly lower rates of the CNB and the NBP, is unlikely to benefit the koruna and the zloty.
