CEE Macro Weekly: A strong start to the year amid geopolitical turmoil

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TOP MACRO THEME(S):

• Quite a strong start to the year in Poland (p. 3) – The beginning of the year was quite good in the Polish economy even despite some disappointment regarding the labour market statistics.

WHAT ELSE CAUGHT OUR EYE:

• POL: L.Kotecki (MPC) assessed that the MPC is likely to initiate an rate cuts cycle in early 3q25, with the total reduction for the year expected to range between 50 to 100bps. In his view, monetary policy will remain restrictive not only due to the level of interest rates but also as a result of the PLN appreciation and ongoing quantitative tightening (the redemption of bonds purchased by the NBP under QE). Kotecki emphasized that the current policy mix is suboptimal, suggesting that fiscal policy should be more restrictive.
• POL: Consumer confidence improved for a third consecutive month in February, reaching -14.8pts (+0.3pts compared to Jan.), mainly on the back of more optimistic assessment of the ability to make major purchases and save, supported by positive real wage growth despite its deceleration. Inflation expectations continued to decline, with the gap between respondents anticipating higher inflation and those expecting a decrease gradually narrowing. However, the expectations indicator fell by 0.9pts, reflecting increased concerns about the unemployment rate and the overall economic situation in Poland, potentially linked to heightened geopolitical uncertainty.
• CZE: Fitch Ratings affirmed Czechia’s rating at AA- with a stable outlook. The agency expects the Czech economy to grow by 1.9% in 2025 compared to 2.3% projected in August (the CNB expects a similar result, 2.0%) and to accelerate to 2.2% in 2026 (against CNB’s forecast of 2.4%). The rise in trade protectionism remains a downside risk to GDP growth in Czechia. Fitch Ratings sees room for interest rate cuts, totaling 50bps by the end of 2025.
• CZE: J.Prochazka, a member of the CNB board, stated that future interest rate cuts will depend on a combination of short-term and long-term factors, the former ones including the scale of price adjustments in services and food, the latter ones involve the performance of the German economy and potential trade barriers in the US. He remains cautiously optimistic that the long-term impact of inflation may be less significant than initially expected.
• HUN: MPC member, G.Pleshinger, said that a rate hike this year is inconceivable. He expects that inflation in 2025 will likely be closer to the upper bound of the 4-5% range, which is 1pp higher than the MNB’s projection. His term expires in March, and while the rest of the MPC may not be as hawkish, making rate cuts this year not entirely off the table, the Council has recently adopted a more restrictive stance.

THE WEEK AHEAD:

• Regional focus will be on the MNB meeting on Tuesday. We expect no change in interest rates, in line with the forward guidance given by the deputy governor B.Virag, and amid strong acceleration of inflation in January. On the macro data front, retail sales results for Poland will be released on Monday, and we expect y/y growth to remain in line with December’s figure of 2.0%. From the perspective of inflationary processes, wage growth data from Hungary (Dec.) seems interesting. On Thursday we will finally get to know the components of Poland’s GDP growth in 4q24 (with the overall figure at 3.2% y/y), followed by revised GDP growth for 4q24 in Czechia (1.6% y/y preliminary).

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