CEE: GDP structure across the region

It is all about the GDP structure in the first quarter in most of the CEE countries. Most likely, consumption was the driving force of the growth, while a negative contribution, if any, may be seen on the net exports side. In Slovakia, together with the GDP structure, the labor market data will be worth a look. Based on monthly data, the unemployment rate in the first quarter is likely to be the lowest in history. May’s flash inflation figures will be released in Croatia and Czechia. In Poland and Slovenia, we have seen easing inflationary pressure in May. Other than that, we will also see retail sales and industrial output numbers for April in several countries. We will watch Hungary in particular to see how the second quarter begins, given the weak economic performance in 1Q25. Finally, on Friday, Fitch will review the rating and outlook for Hungary. Last time, the negative outlook was changed to stable, but we worry that we may see the negative outlook being restored, given the deteriorating economic developments in Hungary.

FX market developments

Over the last week, the Czech koruna has depreciated against the euro, while the Polish zloty, in contrast, strengthened against the euro. Such a development was observed before the outcome of the presidential election in Poland, which may leave a mark on the local FX market in the coming week. Romania held a repo auction to provide liquidity at the 6.5% key rate, instead of the credit facility of 7.5%. This is the first repo announcement since November 2018. In the US, a federal appeals court temporarily reinstated the most sweeping of President Donald Trump's tariffs on Thursday, a day after a US trade court ruled that Trump had exceeded his authority in imposing the duties and ordered an immediate block on them. The uncertainty on the markets remains elevated. This week, the ECB holds a rate setting meeting on June 5. Locally, Poland’s central bank will announce its interest rate decision on Wednesday; stability of rates is expected at this time. The next move is anticipated only after the new growth and inflation projections are released at the beginning of July.

Bond market developments

Long-term yields have declined across the region over the last week. The local markets follow developments on the major markets, where, ahead of the ECB meeting this week, 10Y yields went down. In Romania, discussions about the new government are taking place, but there is no news at this point about the progress in that matter. In Hungary, government papers remain attractive, but at a higher price. This week, Slovakia, Croatia, Hungary and Czechia will be active on the bond market.

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