CEE: First full-year GDP data incoming

This week is focused on preliminary 4Q25 GDP data, with releases from Hungary, Czechia and Poland’s full-year 2025 GDP growth scheduled for Friday morning. Hungarian growth is expected to stagnate in quarterly terms (0.3% y/y), weighed down by the industrial sector, despite resilience in services. On the other hand, the Czech outlook is more optimistic; we project 0.6% q/q growth (2.5% y/y), driven by household consumption and recovering foreign demand. Poland will publish its 2025 full-year estimate, forecasted to exceed 3.5% on the back of robust consumption and investment, with the fourth quarter expansion remaining strong. The National Bank of Hungary's meeting is also a key focus. Following recent communication, rates are expected to remain steady in January, though forward guidance regarding a potential February cut will be closely scrutinized. Additionally, the regional calendar features retail sales (Poland, Croatia, Slovenia, Serbia), labor market data (Poland, Serbia, Romania), and industrial production figures (Croatia, Serbia).

FX market developments

CEE currencies benefited from the de-escalation of tensions between the US and European NATO members reached in Davos regarding Greenland. The scrapping of the threat of additional US tariffs on selected European countries had a strongly positive impact on the euro, which appreciated by more than 1% against the dollar last week. The Polish zloty and Hungarian forint gained about half a percent against the euro on Thursday. The EURHUF moved back closer to 382, a level at which the central bank could feel comfortable resuming monetary easing without concerns about currency stability. However, we believe that, following the negative surprise in December’s inflation readings and the rather puzzling communication of the last two months, the central bank will keep rates unchanged at Tuesday’s MPC meeting and instead focus on guidance. Inflation is set to fall significantly - below the target - during the first months of this year, providing a stronger foundation for a restart of monetary easing at the February meeting. A drop of inflation below the target early in the year may also reinforce speculation about rate cuts in Czechia, although the Czech central bank appears clearly comfortable with the current level of interest rates.

Bond market developments

CEE government bond markets moved sideways last week, with the Hungarian yield curve the only one showing a notable move (10Y yields down 15bp w/w), as easing external risks supported the forint and boosted the central bank’s confidence in renewing its rate-cutting cycle. Romania’s better-than-expected cash-based deficit for 2025 was largely ignored by markets for now; we believe that, once interest rate expenses are adjusted for, the ESA deficit should end up close to 8% of GDP. This week, Romania plans to borrow RON 600–800mn in each of the reopenings of the ROMGB 2028, 2030, 2031, and 2034 bonds, and will also launch a new ROMGB 2029 series while seeking an additional RON 1bn through 1 year T bills. Serbia intends to auction a 9 year bond, while Hungary will offer T-bills alongside its regular bond auctions.

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