More 2Q24 GDP structure and monthly data on 3Q24 performance
|Another busy week in the region, full of data releases. We will continue to see more on the 2Q24 GDP structure across the region (Serbia, Hungary, Slovakia and Romania). So far, Croatia, Czechia and Poland published the GDP breakdown, and private consumption was a key driver of growth. The other significant contribution to GDP growth came from the public sector and quite solid general government consumption. This week, we will also get to see data on the performance of the economies in 3Q24. The August PMIs will already be known on Monday and throughout the week sector performance (retail and industry) in July will be released in several CEE countries. Further, Czechia will publish wage growth in the second quarter, which is an important factor for the monetary policy outlook. Czechia, Slovakia and Slovenia will release July’s trade data. Finally, Poland will hold a rate-setting meeting, but we do not expect any change in the policy rate.
FX market developments
The FX market was quite stable throughout the week and the week-to-week changes were rather marginal. The Hungarian central bank kept the policy rate unchanged at 6.75%, following the 15-month rate reduction cycle. We see space for some monetary easing until the end of the year, following Vice Governor Virág’s statement that the Hungarian central bank could deliver one or two cuts by year-end (including September). This week, the Polish central bank holds a rate-setting meeting, but we do not expect any change as inflation has increased and Governor Glapinski made it clear that monetary easing will not occur any time soon. In Czechia, the wage growth in the second quarter will be an important release for the monetary policy outlook. Although Governor Michl last week reiterated the need for restrictive monetary policy to avoid the return of inflation, we see space for more rate cuts until the end of the year. Wage growth may be one of the key factors determining whether the key policy rate is at 4% or 3.75% at the end of 2024.
Bond market developments
CEE bond markets exhibited mixed trends last week. The ROMGB yield curve slightly edged down, while CZGB and POLGB yield curves moved up by about 10bp and 15bp w/w, respectively. Slovenia was active in international markets, issuing two tranches of Samurai bonds (3Y and 5Y), both classified as ESG social bonds. Although the total volume was modest (JPY 50bn combined), with this issuance Slovenia has already covered two-thirds of its gross financing needs for the year. Hungary is also considering issuing Samurai bonds worth up to EUR 500mn this autumn as part of its diversification strategy, but the final decision will depend on market conditions. As Hungary approaches its self-imposed 30% limit on the share of FX debt in public debt, it may become more selective and use this limit primarily for maturity extension.
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