Trade war with the US would negatively impact CEE

Erste Bank Research Team Erste Bank

On the radar

Unemployment rate in Hungary arrived at 4.2%.
At 10.30 AM CET Slovenia will release retail sales growth in August.
There are no other releases scheduled in CEE.

Economic developments

There are two issues we see having potentially the greatest impact on the markets globally: future US trade policy and the development of the country’s public budget. Donald Trump has repeatedly called for tariffs of 10% on all imports and 60% on imports from China. In the latest CEE Special Report US election: What would a Trump victory mean for CEE we try to quantify the economic impact of global trade wars on CEE based on the German Economic Institute estimates. The institute looked at the impact of tariffs on the world economy, including Germany. We use its estimates for Germany as a key input to estimate the impact on CEE. A -1.4% shock to the German economy would translate into lower GDP growth for CEE economies ranging from -1.0% to -0.2% in the first year after the shock (depending on the country). Romania and Czechia would be the most impacted countries, with GDP growth coming in around 1.0 percentage points lower. The GDP response in Czechia is quite intuitive, given the country’s ties to Germany through the manufacturing sector. Romania has the lowest share of gross value added in German exports and final demand. But because Romanian suppliers are smaller and prone to be less integrated in the value chains also due to geographical distance, they are also prone to being cut off first. Poland, Slovakia and Hungary would see GDP growth dropping between -0.8% and -0.5%. Croatia is the least exposed to German underperformance.

Market movements

The Polish zloty changed the trend at the end of the week and joined the Czech koruna and the Hungarian forint in being weaker against the euro this week. Long term yields remain lower since the beginning of the week. Polish MPC member Kotecki expressed his hopes that Governor Glapinski will sustain his recent dovish tone according to which the interest rate cut could come in March 2025. As for inflation it is expected to rise toward the end of the year before it moderates in the course of 2025. Hungarian central bank slashed the growth forecast for 2024 and 2025 Romania placed RON 500 million of 2026 government papers.

Download The Full CEE Macro Daily

Author

Erste Bank Research Team

Erste Bank

At Erste Group we greatly value transparency. Our Investor Relations team strives to provide comprehensive information with frequent updates to ensure that the details on these pages are always current.

EUR/USD: US Dollar to remain pressured until uncertainty fog dissipates

Unimpressive European Central Bank left monetary policy unchanged for the fifth consecutive meeting. The United States first-tier employment and inflation data is scheduled for the second week of February. EUR/USD battles to remain afloat above 1.1800, sellers moving to the sidelines.

GBP/USD reclaims 1.3600 and above

GBP/USD reverses two straight days of losses, surpassing the key 1.3600 yardstick on Friday. Cable’s rebound comes as the Greenback slips away from two-week highs in response to some profit-taking mood and speculation of Fed rate cuts. In addition, hawkish comments from the BoE’s Pill are also collaborating with the quid’s improvement.

Gold: Volatility persists in commodity space

After losing more than 8% to end the previous week, Gold remained under heavy selling pressure on Monday and dropped toward $4,400. Although XAU/USD staged a decisive rebound afterward, it failed to stabilize above $5,000. The US economic calendar will feature Nonfarm Payrolls and Consumer Price Index data for January, which could influence the market pricing of the Federal Reserve’s policy outlook and impact Gold’s performance.

Week ahead: US NFP and CPI data to shake Fed cut bets, Japan election looms

US NFP and CPI data awaited after Warsh’s nomination as Fed chief. Yen traders lock gaze on Sunday’s snap election. UK and Eurozone Q4 GDP data also on the agenda. China CPI and PPI could reveal more weakness in domestic demand.

Three scenarios for Japanese Yen ahead of snap election

The latest polls point to a dominant win for the ruling bloc at the upcoming Japanese snap election. The larger Sanae Takaichi’s mandate, the more investors fear faster implementation of tax cuts and spending plans.

XRP rally extends as modest ETF inflows support recovery

Ripple is accelerating its recovery, trading above $1.36 at the time of writing on Friday, as investors adjust their positions following a turbulent week in the broader crypto market. The remittance token is up over 21% from its intraday low of $1.12.