First glimpse into Czech GDP in early 2021

This week is packed with interesting releases. We will get the first glimpse of 1Q21 GDP in the Czech Republic, which is likely to show subdued performance of the economy, affected by the restrictions that were in place. The year-on-year development may reach -3.3% (-1.7% q/q). However, given improvements in the sentiment and the epidemiological situation, recovery is likely to start in 2Q21. Hungarian central bank meeting should leave the key rate at 0.6%, whilst confirming the flexibility of the bank’s bond-buying program. Poland, Hungary, and Romania will publish their unemployment rates for March – a slight decrease is expected for Poland, whereas Hungary could see its rate inch up a bit, and the recently changed methodology could translate into a small increase in Romania. Croatia, Slovenia, and Serbia will all publish their March retail sales prints which are likely to be pushed up closer to the double-digit region on the back of last year’s low base. The base effect should have helped to increase March industrial production growth in Croatia and Serbia closer to 4% y/y and 6% y/y, respectively. Moreover, we will see the first inflation data for April in Slovenia and Poland. Both countries should see an increase in inflation, affected by the low base from last year, though this will be much more pronounced in Poland (CPI rate to exceed 4% y/y).

CEE recovery index

Following the plunge around Easter, the CEE Recovery Index improved in mid-April. Yet, many containment measures remained in place across much of the region. Mobility to grocery stores improved markedly and was almost as high as right before Easter, while mobility to retail stores saw a more moderate increase. Workplace mobility shifted up to the highest point since early March. On the other hand, air pollution decreased further, dampening the otherwise brisk increase of the overall Recovery Index. Due to data availability issues, we have kept electricity consumption unchanged for the last two weeks. Hence, future revision of the values cannot be ruled out.

FX market developments

The Czech koruna broke through the 25.900 level and stabilized close to 25.850 EURCZK last week. We forecast a continuation of koruna appreciation towards 25.40 EURCZK by year-end. The CZK was a clear outperformer in the region last week. Both the forint and Polish zloty lost about 0.5% w/w, despite some USD weakening, which usually plays in favor of CEE currencies. The RON remained very stable, potentially supported by the central bank purchases of the currency.

Bond market developments

ROMGBs reacted positively to the quick end of the coalition crisis, which had been ignited by the departure of the health minister and lasted about one week. Yields on 10Y ROMGBs went down 10bp w/w and dropped below 3%. The yield curve also slightly flattened in Czechia, as discussion on rate hikes will start no earlier than in summer, according to Governor Rusnok. In Hungary and Poland, yield curves steepened, despite the increased commitment of both central banks to increase their government bond purchases. Glapinski’s dovish stance was somewhat counterbalanced by statements from MPC members and former Governor Belka, who advocated that the central bank should signal its readiness to act in case of rising inflation expectations. The auction calendar will be far less crowded in CEE compared to the previous week. The NBP is scheduled to hold its QE bond auction on Thursday.

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