German car production remains flat, weapon production booms
On the radar
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Serbia’s central bank left the key policy rate unchanged at 5.5%.
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Industrial output in Slovakia declined by -4.0% y/y in May, while in Slovenia it decreased by -0.2% y/y in May.
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The final inflation rate in Czechia was confirmed at 2.9% y/y.
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Producer prices in Croatia in June were up by 1.4% y/y.
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Romania inflation rate was released at 5.66% y/y.
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Inflation rate in Serbia will be published at noon CET.
Economic developments
The CEE region has been seen as a highly efficient automotive manufacturing hub. Passenger cars comprise almost 90% of car production in EU27 and in the CEE region, roughly 30% of passenger cars are produced in terms of total car production in Europe. Although the production dynamics in the post-COVID era were mixed, in 2022, the region surpassed Germany in finished vehicle production. However, the manufacturing of motor vehicles in Germany has been rather sluggish since 2021 as evidenced by the index moving rather sideways. That comes in contrast to production of ammunition and weapons where the index (2021=100) has been visibly rising. In the first half of 2025 the index was close to 170 suggesting quite a surge in production of ammunition and weapons since 2021. That comes in line with data showing a substantial increase in military spending as well. While the defense sector remains smaller compared to automotive in the region, recent developments create new opportunities for local defense companies and suppliers, including those with automotive backgrounds.
Market developments
Serbia’s central bank surprised the markets by keeping the key rate unchanged at 5.75% at its July meeting due to worries about inflation development. We now expect to see just one cut this year, likely not before the last quarter of the year, as inflation will be higher than anticipated previously. In response to final inflation reading at 2.9% y/y in May the Czech central bank repeated the need to remain cautious and sustaining tight monetary conditions. Romania sold RON 1.2 billion of local government papers maturing in 2030.The papers were priced to yield 7.31.%.
Author
Erste Bank Research Team
Erste Bank
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