CEE: Fitch decides on Romania’s rating

The releases of economic growth figures for the second quarter will be the main topic for this week, while important releases of other macroeconomic indicators will take place as well. On Monday we will see Romania’s trade balance for June and Slovenia’s industrial production. On Tuesday, Romania’s inflation is set to accelerate sharply due to electricity price hikes, with our forecast at 6.9% y/y and 1.8% m/m. Wage data from Romania and Slovakia will also be released, alongside Serbia’s CPI, which we expect to be 4.6% y/y, driven by food prices and drought conditions. Wednesday brings current account data from Romania and Serbia, and Poland’s preliminary Q2 GDP, which we forecast at 3.4% y/y, supported by solid industry and retail figures. Thursday is the key day for GDP releases: Romania’s Q2 GDP is expected to show a mild contraction of -0.1% q/q and -1.8% y/y due to weak confidence and base effects. Slovakia’s economy likely grew 1.2% y/y, while Slovenia is expected to post roughly the same growth at around 1.2% y/y. Finally, Friday will see Slovakia’s CPI, which we expect to remain at 4.3% y/y, with services as the main driver and food price growth normalizing.

FX market developments

CEE currencies strengthened last week, supported by a weaker dollar and several local factors. In many cases, inflation has been easing more slowly than expected, limiting the scope for further monetary easing in the region this year. This was particularly evident in Hungary, where it would not be surprising if the central bank refrained from any rate cuts in 2025. In the Czech Republic, the central bank went even further - its new macroeconomic forecast explicitly excludes any rate cuts in the baseline scenario until 2027. All three monetary policy meetings held last week in Czechia, Serbia and Romania resulted in no changes to interest rates. The Czech koruna responded to the perceived end of the easing cycle by appreciating to around EURCZK 24.4, up from approximately 24.6 earlier in the week.

Bond market developments

CEE government bond yields remained stable or edged slightly lower over the week. Looking ahead, a key event is scheduled for the end of this week: Fitch Ratings’ review of Romania’s sovereign rating, which currently sits at the lower end of the investment-grade scale with a negative outlook. The substantial fiscal consolidation package announced in July should help Romania avoid a downgrade this autumn. Notably, S&P has already conducted an extraordinary review, affirming Romania’s current rating. However, the negative outlook may persist due to risks surrounding the implementation of fiscal measures - particularly in 2026, when headwinds could emerge. Assuming Fitch confirms the investment-grade rating, we expect Romania to return to international markets as early as September.

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