CEE: First 3Q26 GDP estimates in the region

Global events will be in the spotlight next week, with both the US Federal Reserve and the ECB holding monetary policy meetings. We expect the Fed to leave interest rates unchanged on Wednesday, in line with market expectations. Persistent inflationary pressures and a resilient labor market provide sufficient justification for a pause in the tightening cycle, particularly ahead of the US mid-term elections. Similarly, we expect the ECB to keep rates unchanged at its Thursday meeting. Although services inflation has shown some renewed momentum, the ECB can afford to remain patient and assess incoming economic data before deciding on further tightening. Moreover, several ECB officials have pointed out that higher bond yields are already contributing to tighter financial conditions, supporting a wait-and-see approach. On the macroeconomic front, the first estimates of 3Q26 GDP growth will be released for the Eurozone, Czechia and Hungary. Inflation developments will also remain in focus, with flash estimates for October scheduled for release in several CEE economies. In Poland, we expect headline inflation to moderate slightly to 3.9% y/y, from 4.0% in September, partly reflecting lower fuel prices following temporary tax reductions. Slovenia will also publish its latest inflation figures. Several CEE countries will publish data on the performance of the industry and retail sectors. Finally, political developments in Serbia could attract considerable market attention. Serbian longtime leader Aleksandar Vucic surprisingly conceded defeat in a snap vote on Sunday. The Student List won the ballot.

FX market developments

Global developments continue to shape the FX market in the region. While the EURCZK declined slightly over the last week, the EURHUF and EURPLN moved slightly higher. The relative weakness of CEE currencies reflects the risk attitude on global markets and ongoing tensions around Russia and in the Middle East. This week will be no different, with the US Fed and ECB meetings as key events affecting the FX market. The Hungarian central bank kept the policy rate unchanged at 5.5%, as was broadly expected. Further monetary easing would require a decline in energy prices accompanied by a corresponding drop in bond yields in developed markets, as well as the successful consolidation of the state budget. Currently, we anticipate that the central bank will not take its next step until the second quarter of 2027.

Bond market developments

The widening of the spread between French 10Y government bonds and Bunds to above 175bp, a level last seen at the peak of the Euro Area debt crisis in 2011, left CEE fixed income markets relatively unscathed. 10Y local currency government bond yields increased by no more than 10bp, while yields in CEE Euro Area member states even declined slightly. Hungary was surprisingly the only CEE country to experience a more substantial increase in yields (+25bp w/w). The newly unveiled 2027 budget and medium-term fiscal trajectory reaffirmed Hungary’s commitment to fiscal consolidation and euro adoption. However, the expenditure savings underpinning the 2027 budget remain less tangible than costly new expansionary measures that are to slow the pace of consolidation. Moreover, the fiscal trajectory could disappoint investors who had been betting on early euro adoption, i.e. before 2032. The increase in Hungarian yields could also be part of a correction, given that the spread between 10Y HGB and CZGB yields had narrowed significantly, reaching just 5bp in mid-October, well below the average of 50bp recorded over the preceding three months. This week, we expect the Romanian Ministry of Finance to be active in borrowing, capitalizing on easing market pressure following the formation of the new government. We also expect the government to present a budget revision, while a new foreign bond issuance is becoming increasingly likely.

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