Manufacturing recovery gains uneven traction

On the radar

• 2Q26 GDP in Hungary was confirmed at 1.7% y/y.
• Inflation rate in Croatia increased slightly in August to 4.1% y/y.
• Manufacturing PMI increased further in Czechia to 54.1 in August and in Romania to 51.1. In Hungary it landed at 51.3, while in Poland it eased to 48.3.
• Today, Romania releases producer prices at 8 AM CET.

Economic developments

Manufacturing PMIs in the region send mixed signals. In August, manufacturing PMI increased further in Czechia to 54.1 and in Romania to 51.1. In Hungary it landed at 51.3, while in Poland it eased to 48.3. We tend to look at three month moving average to see better the underlying trend rather than fluctuations. From that perspective it is quite clear that Czechia and Romania observe continuous improvement in the market sentiment following developments in Germany. In Romania, PMI recorded a second consecutive month in expansion territory that was mainly driven by higher new orders and output. Czechia saw the sharpest rise in new orders since February 2022. As for German manufacturing PMI, it rose to 54.1 that is the strongest reading in more than four years and such development could strengthen demand across regional manufacturing and supply chains. On the other hand, manufacturing PMI is moving quite sideways in Poland and persistently below the threshold of 50. The PMI report on PMI in August mentions output and new orders going down at a faster pace than in July as a main reason for PMI decline.

Market movements

Euro area inflation accelerated to 3.3% y/y from 2.9%, driven almost entirely by energy. Such development supports a 25bp deposit-rate hike to 2.50% by ECB at the upcoming meeting in September. The 2027 draft budget in Czechia should land at 2.8% of GDP only by invoking the EU escape clause for defense spending. According to Ministry of Finance without the clause the shortfall would be around 3.5% of GDP. Further, Poland completed all milestones by the 31 August deadline, clearing the way for the final payment request from RRF funds. At the same time, Romania may lose EUR 770 million in EU funds in the aftermath of political instability. Interim PM Bolojan said, however, that Romania should see 90% absorption rate from RRF grants and a 95% absorption rate of loans. The final payment request should be submitted the end of September. On the FX market, the Czech koruna and the Hungarian forint have weakened against the euro since the begging of the week, while Polish zloty has slightly strengthened. Long-term yields have increased across the region as renewed US-Iran strikes lifted oil price Brent toward USD 95 per barrel reinforcing expectations for monetary tightening on the core markets.

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