CEE Macro Weekly: 175 bps in 8 months

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TOP MACRO THEME(S):

• The “perfect” level of interest rates (p.3) – Poland’s MPC delivered another 25bp cut in December, bringing the reference rate to 4.00%, and justified the move with better-than-expected inflation data and an improved outlook.

WHAT ELSE CAUGHT OUR EYE:

• CEE: PMI readings across the CEE region remained in contraction territory in November. The indices improved in Czechia and Poland, and in both countries export orders returned to growth. By contrast, the index declined in Romania. In Czechia, PMI improved to 48.0 from 47.2. The uptick reflected a slower decline in new orders, while export orders rose for the first time since February 2022. In Poland the manufacturing PMI increased to 49.1 in November from 48.8, in line with market expectations. The further improvement in the PMI was supported by an increase in the output and employment components, accompanied by an extension of delivery times. The PMI report points to a gradual improvement in business conditions, including the first increase in export orders since March. The BCR Romania Manufacturing PMI slipped to 47.2 in November from 47.6 in October. The decline was driven by an accelerated and largely domestic-focused fall in output and new orders. The 12m outlook fell to the lowest level in the history.
• POL: GDP in 3q25 increased by 3.8% y/y, following 3.3% y/y in 2q25, i.e. 0.1pp stronger than indicated in the initial release. In q/q (sa) terms, GDP increased by 0.9%, also 0.1pp above the flash estimate. Private consumption remained the main driver of growth, although its pace slowed to 3.5% y/y from 4.5% y/y previously. This slowdown occurred despite real wage growth holding close to 4.5% y/y, and likely reflected a further increase in household savings. Investment surprised strongly on the upside, rising by 7.1% y/y compared with a 0.7% y/y decline in the previous quarter. The public sector was the main source of acceleration, as investment by large enterprises showed only a modest increase of 3.3% y/y. In the coming quarters, we expect a continued recovery in investment, peaking around mid-2026, when growth may reach double-digit rates, driven by the accumulation of projects ahead of the year-end deadline for using RRF funds. We maintain our 2025 GDP growth forecast at 3.5%, and expect a similar pace in 2026.
• CZE: CPI inflation in November unexpectedly fell to 2.1% y/y from 2.5% y/y in October (cons.: 2.5% y/y). While the price dynamics in core categories fell – inflation excluding energy, food, alcohol and tobacco declined to 3.0% y/y from 3.2% y/y - the primary source of the surprise came from food, alcohol and tobacco prices, whose annual growth rate dropped to 2.8% y/y from 3.9% y/y. Energy price dynamics fell to -3.8% y/y from -3.3% y/y. On a monthly basis, prices decreased by 0.3%. We assume that although the surprise is positive, it will not materially affect monetary policy.
• ROM: The Fiscal Council assessed that government’s deficit target of 8.4% of GDP this year is achievable. The Council expects the deficit to decline to 6.5% of GDP next year under the conditions of continued fiscal consolidation.

THE WEEK AHEAD:

• Within a week we will learn the inflation data from Hungary, Czechia (final figures) and Romania. In addition, we will receive the October industrial production data from Czechia.