Real wage growth to support consumption next year

On the radar

• In Hungary, PPI index declined by -6.6% y/y in October compared to -2.5% decline in September.

• Today, Poland will publish the 3Q23 GDP structure at 10 AM CET. At the same time, November’s flash inflation will be released.

• In Slovenia and other Eurozone countries, we will also see the flash estimates of HICP inflation in November.

• Later today, Croatia and Serbia will publish industry and retail sales growth in October.

• Tomorrow, PMI indices for November will be published in Czechia, Hungary and Poland. 3Q23 GDP structure will be released in Hungary and Czechia.

Economic developments

In our latest outlook How CEE will develop in 2024? we present our expectations for economic development in the region in 2024. We see recovery of private consumption as a key driver of the growth. In the first half of 2023, private consumption contracted in most CEE countries, with the exception of Croatia, Romania and Slovenia. Czechia, on the other hand, experienced the biggest drop in private consumption. In 2024, real wage growth should support increasing spending of households across the region. In other words, nominal wage should sustain dynamic growth while inflation is expected to ease further. Households should thus regain the purchasing power. Investment will be driven by the ongoing flow of EU funds, as we see Recovery and Resilience Funds cushioning the switch between multi-annual budgeting periods that is usually associated with lower investment activity. The downside risks prevail, however, as external environment is expected to weaken and the Eurozone has been stagnating.

Market developments

FX market keeps gaining against the euro since the beginning of the week, while long term yields have been declining by as much as 30 basis points in Hungary and 20 basis points in Romania and Slovakia. Such development is driven by global factors as 10Y German yields also went down by 20 basis points this week. The Czech Parliament approved the 2024 budget proposal assuming fiscal consolidation by CZK 43 billion (roughly 0.8% of GDP). The budget is based on the assumption that Czech economy will grow by 2.3% with private consumption increasing by 3.9% and inflation at 2.8% on average in 2024.

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