German industry might have reached the bottom

On the radar

• Trade balance in Romania was in deficit of EUR -2.84 billion.

• Retail sales grew dynamically in November in Romania – up by 9.2% y/y.

• 3Q24 GDP growth was revised marginally up to 1.2% y/y in Romania.

• At 10.30 AM CET Slovenia will publish industrial output growth in November.

• At noon CET Serbian central bank will announce the interest rate decision.

Economic developments

On Thursday, data on the industrial sector in Germany was released. Although German industrial production contracted in November (-2.8% y/y), the decline was not as extensive as was presumed (market consensus at -4.5% y/y). The trend based on a three-month moving average suggests that the bottom has been reached, and Germany's industry should slowly but surely get out of the woods. The recent contraction of the German industry is the most severe in 20 years, except for the deep dive of production during the Great Financial Crisis of 2008 and 2009, as well as the pandemic period. In mid-December, the Bundesbank lowered its forecast for economic growth in Germany in 2025 to 0.2% from 1.0% expected in June 2024. The weakness of the German economy, as well as the high level of global uncertainty, remains the key risk factors for the CEE outlook.

Market developments

Today, Serbian central bank is holding a rate setting meeting and we expect it to remain on hold. In other words, key interest rate in Serbia should remain flat at 5.75%. We still expect monetary easing in the course of 2025; however, the pace will depend on the major central banks’ moves (ECB and Fed). Toward the end of the week, we see CEE currencies strengthening against the euro. On the other hand, the long-term yields have moved up across the region suggesting global factors are at play. Poland followed Hungary and Slovenia in tapping the international bond market. The Finance Ministry confirmed it was selling €1.5 billion ($1.5 billion) each in 5-year and 10-year notes at 110 basis-points above midswaps for the longer maturity and 60 basis points for the shorter security. Hungary announced it was likely to miss the 4.5% of GDP target for budget deficit with the budget gap reaching likely as much as 4.8% of GDP in 2024. At this point, Hungary remains committed to fiscal consolidation toward 3.7% of GDP in 2025 according to authorities.

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