CEE Macro Weekly: A month of positive surprises

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TOP MACRO THEME(S):

• As good as it gets (p. 3) – 2025 has started surprisingly well in the Polish economy, which combined with an acceleration in GDP growth towards the end of 2024, allows us to be optimistic about 2025. That said, we stick to our forecast of 3.5% growth in 2025.

WHAT ELSE CAUGHT OUR EYE:

• HUN: The MNB kept interest rates unchanged with the base rate at 6.50%. The decision was in line with market expectations. The press release indicated that the MNB expects the economy to return to disinflation in 1q25, but the weakening of the forint will slow the process. MNB noted an increase in risks to the inflation target and expects CPI inflation to return to the broad target later than assumed in the December projection. The MNB's conservative stance on rate cuts is also likely to be influenced by expansionary fiscal policy.
• HUN: Prime Minister V.Orban announced extension of the lifetime tax exemption to mothers with 3 and 2 children. The new tax exemption for mothers of three will cover 250k individuals and about 600k mothers of two, which in total may cost the Hungarian budget approx. 0.6% of GDP. The planned measures imply higher than currently expected fiscal deficit in 2026 and they may contribute to extending the pause in monetary easing. The government also provided details about the new support benefit scheme for pensioners. About 2.5m people is going to receive special cards that will enable a VAT refund on specific food categories (vegetables, fruits, and dairy), as, according to V.Orban, a VAT cut would have only boosted retailers' profits.
• HUN: S&P Global issued a warning that the new tax relief measures (see bullet point above) planned by the Hungarian government are increasing economic risks and will result in a rising public debt (to GDP) until 2026.
• ROM: Fitch Ratings affirmed Romania’s rating at BBB- with a negative outlook. The agency downgraded the outlook to negative in mid-December last year, mainly due to political uncertainties that affect fiscal prospects, large budget deficits, difficult trade-offs in fiscal consolidation and rising public debt. Fitch expects economic growth to recover to 1.4% y/y and 2.2% y/y in 2025 and 2026, respectively, from 0.9% in 2024, slower than the government’s forecast. The agency forecasts the budget deficit to narrow to 7.5% and 6.8% of GDP in 2025 and 2026, respectively, from 8.7% in 2024.
• ROM: Prosecutors took independent presidential candidate C.Georgescu for questioning in a broad criminal investigation regarding Nov’24 presidential elections, acts against constitutional order, fraud in election campaign and setting up fascist organization. The winner of the annulled vote could be banned from running for president only if he were convicted, which is highly unlikely to happen in such short time before the election day (May 4).

THE WEEK AHEAD:

• The coming week will bring PMI readings in Poland and abroad, as well as a preliminary reading of CPI inflation in the euro area. The ECB will decide on interest rates (we assume a 25bp cut). In the US, the spotlight will focus on the labour market – ADP report and NFP data.

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