CEE: GDP structure across the region

After Croatia and Czechia, all other countries will publish their GDP structures for the third quarter. Poland and Serbia will release detailed data on Monday, followed by Hungary on Tuesday, while Slovakia and Romania will complete GDP data releases on Friday. Another important event will be Poland’s central bank meeting with an interest rate decision on Wednesday. This will be an interesting one, as November’s inflation surprised to the downside. Other than that, several CEE countries will see manufacturing PMI indices in November. Croatia will publish flash inflation for November. Hungary, Slovakia and Romania will release retail sales growth in September and Hungary will publish industrial output growth as well. Finally, trade data is due in Hungary and Slovenia. On Friday, after the market closes, Fitch Ratings is scheduled to review its rating and outlook for Hungary. No action is expected.

FX market developments

While the Czech koruna and Hungarian forint strengthened against the euro more visibly over the last week, the EURPLN has been moving in a tight range of 4.22 to 4.23. Hungary’s central bank Governor Varga seems to be optimistic about inflation developments next year. He sees inflation around 3.4% to 3.6%, as opposed to the latest projection from the central bank expecting average inflation at 3.8%. In Czechia, central banker Seidler stated that a slightly restrictive monetary policy is needed. Deputy Governor Frait also views the risks as slightly inflationary. This week, Poland’s central bank will draw most of the attention on the local markets. Currently, the key interest rate is at 4.25%, but we believe the monetary cycle has not come to an end. It is not clear, however, if the central bank will pause in December or continue with interest rate cuts, given the inflation development. November’s flash estimate at 2.4% (another surprise to the downside) increases the probability of monetary easing substantially.

Bond market developments

Long-term yields have declined across the region, most notably in Hungary, where 10Y yields returned to below 7%. Poland also experienced a quite visible downward move of the long end of the curve. In Romania, the budget deficit on a cash basis reached 5.7% of GDP in the first ten months of the year, compared to 6.2% of GDP in the same period of the previous year. The execution as of October shows the first significant adjustment compared to the same period of last year. This improvement is due to both better tax collection following the VAT increase and tighter expenditure management. Last week, Romania, Czechia and Poland were active on the bond market. Poland is worth mentioning, as the auction included the first-ever sale of floating bonds based on the POLSTR index (NZ0928), which raised PLN 1.48bn. The ministry also confirmed plans to introduce 5- and 10-year variable-coupon treasury bonds based on the POLSTR index in the longer term. Lastly, Serbia has been trying to have the US sanctions lifted, as NIS has been operating in maintenance mode. Hungary’s refiner MOL will boost oil supplies to Serbia to mitigate the risk of a fuel shortage.

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