Romania’s election outcome

This week, there will be a limited set of data releases in the region. Czechia, Poland and Slovenia will publish producer prices for April. Poland will also release industrial output growth in April, as well as labor market data – wage and employment growth. Labor market outcomes will also be known in Slovakia and Hungary as the unemployment rate release is scheduled in both countries. Finally, wage growth in March is due in Croatia.In Romania, Nicusor Dan (centrist mayor of Bucharest) won the presidential election securing around 54% of the votes. George Simion, leader of the far-right Alliance for the Unity of Romanians, got about 46% of vote. The decisive victory was fueled by Romania’s biggest voter turnout in 25 years reaching almost 65%.

FX market developments

The FX market was quite stable in the region over the last week. While the Czech koruna and the Hungarian forint strengthened against the euro marginally, the EURPLN moved slightly up. We see the FX market being determined by international developments rather than domestic factors in these three countries. Further, the Romanian leu seems to have reached a new equilibrium, with the EURRON oscillating around the level of 5.10. Turnover on the FX market was not as elevated as it was in the week after the first round of the presidential election. The outcome of the presidential election has the potential to impact the markets. The new president will have to appoint a new prime minister quickly. Further stabilization will be achieved once a fully functioning government is formed and the fiscal consolidation plan is delivered, as the EC will be assessing Romania’s fiscal stance at the beginning of June. We do not see any imminent risks to Romania’s EU path at this point.

Bond market developments

We have recently seen stabilization of the bond market in Romania, with long-term yields declining toward 8.0%. Romania’s fiscal situation is very difficult, making Romania very sensitive and fragile with regard to any political instability. Credible fiscal consolidation will remain a key issue for investors regardless of the outcome of the presidential elections. In other countries, we have seen a marginal decline in longer-term yields at the end of last week. This week, Slovakia will be the most active country on the local bond market, as it plans to offer a series of bonds with planned supply of around EUR 500mn. Poland and Czechia will also offer bonds.

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