CEE insights: Growth structure, PMIs and flash inflation releases
|The week opens with February PMI releases across the region, namely in Czechia, Hungary, Poland and Romania. The manufacturing PMI indices have been below the threshold of 50 for quite a while, suggesting ongoing contraction of the industry sector. A couple of countries will publish flash inflation estimates for February (Croatia and Czechia), while several CEE countries will release the GDP structure for 4Q24 and for all of 2024. So far, we have seen GDP breakdowns in Czechia, Croatia, Poland and Serbia. Private consumption was a key driver of economic expansion. The performance of the retail and industry sectors at the beginning of the year will be released in Croatia, Hungary, Romania and Slovakia. Finally, Czechia will publish wage growth in the fourth quarter of 2024, which is an important indicator for monetary policy decisions.
FX market developments
CEE currencies have been strong against the euro. The EURHUF briefly went below 400 and the EURPLN touched 4.12 - the lowest level in a decade. We see a combination of global and local factors behind recent developments on the FX market. The news regarding the peace deal between Russia and Ukraine are positive for the currencies in the region. On the other hand, trade wars bring a high level of uncertainty, which is negative for the FX market. Locally, delayed monetary easing, especially in Hungary and Poland, keeps the interest rate differential very high, supporting lower EURHUF and EURPLN levels. In Hungary, a change in the leadership of the central bank will take place next week. Initial communication will be scrutinized regarding the monetary policy direction in 2025. At this point, we stick to monetary easing of a total 50 basis points in 2025. This week, the ECB meeting will be a key event for the markets.
Bond market developments
Long-term yields have declined across the region over the last week, most notably in Romania, as the long end of the curve shifted by roughly 20 basis points. Romania’s Ministry of Finance indicated a gross funding need for 2025 in the amount of RON 232bn. Financing the planned 7% of GDP budget deficit accounts for around RON 135bn (45% financed from internal sources and 55% from external ones). We estimate that around 20% of the gross funding needs for this year has already been covered. Slovakia will hold a retail bond auction on Monday, offering 2Y and 4Y maturities with 3% and 3.3% coupons. The total size of both issues together will not exceed EUR 500mn. This week, Hungary plans to sell T-Bills, while Poland will hold bond auctions.
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