CEE Macro Weekly: CEE rides the euro area recovery

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TOP MACRO THEME(S):

• From hawk to dove and back to hawk again (p.3) – Despite CPI inflation accelerating to 3.4% y/y in August we continue to believe, that there will be neither rate cuts nor rate hikes in Poland this year, despite the latter being priced in by the market. In our view, monetary policy easing will begin next year, after CPI inflation falls sustainably to the target.

WHAT ELSE CAUGHT OUR EYE:

• CZE: The Czech Fiscal Council expects the general government deficit to reach 3.5% of GDP in 2027, above the government’s formal target of 2.8% of GDP. The forecast incorporates discretionary measures included in the draft 2027 budget. The Council assesses these measures as representing the most significant fiscal loosening since COVID-19.
• POL: By the end of 2026, Poland is expected to receive the final PLN 90bn from the RR F – the first tranche in October and the second, worth just under PLN 50bn, in December. According to the Ministry of Development, Funds and Regional Policy, Poland has completed all investments and milestones agreed with the European Commission, and th e Ministry expects almost full utilisation of both the grant and loan components . The total value of Poland’s RRF amounts to around EUR 54.7bn, including EUR 25.3bn in grants and EUR 29.4bn in preferential loans. The RRF is one of the key drivers of Poland’s current investment boom.
• ROM: Prime Minister I.Bolojan announced that Romania has completed one of the largest financing programmes in its history, the National Recovery and Resilience Plan. The absorption rate for the RRF grant component (EUR 13.56bn) has reached 90%, while that for the loan component (EUR 7.8bn) stands at 95%. Several issues remain under review and discussion with the European Commission, with the final figures expected to be confirmed in the coming days.
• HUN: Prime Minister P.Magyar announced that Hungary has fulfilled all the milestones required for the release of suspended EU funds. This should allow Hungary to receive around EUR 10bn in RRF funding, comprising EUR 6.5bn in grants and EUR 3.5bn in concessional loans. In May, P.Magyar and European Commission President U.von der Leyen agreed to release EUR 16.4bn in EU funding (EUR 10bn from the RRF and EUR 6.4bn from the Cohesion Funds) that had previously been frozen over rule-of-law and corruption concerns under V.Orbán’s government.

THE WEEK AHEAD:

• At Wednesday’s meeting, the NBP is likely to keep interest rates unchanged. See page 3 for details.
• This week, the focus will be on July manufacturing data from Hungary and Czechia (Monday), as well as inflation estimates from Hungary (Tuesday), Czechia (Thursday) and Romania (Friday). In the first two countries, inflation is likely to have remained below 2.0% y/y. In Romania, where last year’s regulatory changes pushed inflation sharply higher, it is expected to slow further to below 7.0% y/y.