State of the polish real economy in March to be revealed

This week in CEE

This week’s calendar is dominated by March data releases in Poland. Industrial production growth is likely to have accelerated above 8% y/y, due to the low base from last year as strict lockdown measures were enacted in mid-March 2020. Positive calendar effect as well as improving sentiment should have pushed industrial production growth up, too. Polish wage growth likely kept a similar dynamic than before, not yet affected by the base effect. March retail sales in Poland were strongly affected by the base effect from a year ago, although part of this could have been offset by the re-introduction of lockdown measures and closure of the majority of retail stores in mid-March. On the other hand, improvement of consumer sentiment should bode well for retail trade. Slovakia’s unemployment rate in March likely saw a slight increase, influenced by the restrictive measures in place. In Croatia, on the other hand, we expect the unemployment rate to have declined from 9.7% to 9.3%. Producer prices in Czechia, Poland and Slovenia could see an increase due to the base effect associated with low oil prices last year. Moreover, Romania is scheduled for a rating review by Fitch – with no rating changes expected.

The CEE Recovery Index plunged in the second week of April, following the notable pre-Easter surge. Strict containment measures remain in place across much of the region. Mobility to grocery stores fell sharply, as the Easter effect dissipated, while mobility to retail stores decreased less markedly. Moreover, given the ongoing lockdown measures and Easter Monday bank holiday, workplace mobility went down further. Air pollution halved compared to the preceding week, adding to the overall visible decrease of the Recovery Index. Electricity consumption was lower, as well.

FX market developments

The performance of CEE currencies was a mixed bag last week. The Czech koruna outperformed its peer currencies; it appreciated against the euro, with the EURCZK moving close to the 25.9 level. The reaction of the Romanian leu to political jitters in the ruling coalition was rather muted. Hungary and Poland are going to intensify their government purchases, adding extra PLN and HUF liquidity to the market. This may have a negative impact on their currencies. The Hungarian forint underperformed last week, losing about 1% y/y, with the EURHUF moving above 361.

Bond market developments

CEE bond yield curves moved down a bit last week, except ROMGBs, where yields inched up due to a new round of political tension. The strongest yield decline was seen in HGBs, especially on the mid-part of the curve (5Y about -15bp), which may benefit from the anticipated increase of bond purchases, likely the central topic at next week’s MPC meeting. Poland’s central bank already intensified its government bond purchases last week with the largest amount (PLN 5.4bn) since July 2020. This week will be busy in terms of bond issuance in CEE. Slovakia will re-open four issues (2024, 2029, 2030, 2047), Romania two (2027, 2023), Czechia two (2024, 2032), and Serbia one (2032). Poland and Hungary will hold their regular auctions. Czechia, Croatia and Hungary will issue some T-bills. Hungary should also place its 30Y green bond this week, which the country's central bank has already committed to buying via its QE. Spreads on Montenegro’s Eurobonds rose 80bp w/w, on concerns about the repayment of a USD 1bn road loan to China.

In case you missed

RO: February industrial production was weaker than expected; while March inflation came in line with the call CZ: Inflation in March rose slightly more than expected, affected by fuel prices SK: March inflation rose more than expected, driven by higher tobacco prices PL: March inflation confirmed inflationary pressures (3.2% y/y); National Bank of Poland intensified bond purchases RS: Central bank left key rate at 1% and stability of rates seems the most likely scenario for 2021 RO: S&P revised Romania’s rating outlook to stable from negative

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