Croatia’s rating upgraded by S&P

On the radar

• S&P raised Croatia's credit rating by one notch to 'A', with the outlook reverted to stable.
• Czechia will release producer prices in February and current account data in the morning.
• In the afternoon, Poland will publish trade and current account balance.

Economic developments

Last Friday, S&P delivered a positive surprise and raised Croatia's credit rating by one notch to 'A', with the outlook reverted to stable. This extends the rating upgrade run to an impressive 6 notches over last decade and puts the rating at another record high. Further it opens a one-notch gap compared to Fitch and Moody’s. As expected, the rationale underlines a solid and resilient economic outlook (2.7% average in 2026-29), while integration and reforms related to the Recovery and Resilience Facility and looming OECD membership are seen as rating positives. Despite growing pressures on the current account balance, the external position is seen as a supportive driver amid a favorable funding mix and a neutral net external debt position. On the negative side, S&P anticipates a more expansionary fiscal policy (2.7% of GDP average budget deficit in 2026-29), owing to higher social and wage spending, along with a growing military budget. Negative deviation from the fiscal trajectory, along with global risk factors hampering the GDP outlook, are expectedly seen as key downside risks ahead. Our baseline for 2026 remains that Fitch and Moody’s will stay on hold, with eyes on outlook developments, i.e. whether OECD membership and the mentioned reform effort signal upside potential down the road.

Market movements

After a very brief relief in the middle of last week, yields increased at the end of last week. Hungarian and Romanian 10Y yields moved above 7%, Czechia’s long end of the curve increased toward 5% while Poland’s toward 5.75%. CEE currencies remain weaker against the euro. This week, Czechia’s central bank is holding a rate setting meeting and we expect no change in key policy rate. As for other news, Serbia decided to cut temporary fuel tax by 20% as oil price increased visibly in the aftermath of Middle East conflict. Price of Brent went above USD 100 per barrel. If such situation becomes long-lasting, Poland’s central banker Maslowska said it may trigger discussion about rate hike in Poland if inflation trend changes as a result. Further, Poland plans to tap SAFE loans despite the President’s veto. Finally, Romania approved 2026 budget plan and targets deficit at 6.2% of GDP.

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