CEE Macro Weekly: Divergent fiscal paths in the CEE

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TOP MACRO THEME(S):

• Goldilocks in the grid of geopolitics (p.3) – The geopolitical shock is unsettling the domestic economy’s “Goldilocks” backdrop, but for now it is not enough to knock it off course.

WHAT ELSE CAUGHT OUR EYE:

• POL: CPI inflation in March rose to 3.0% y/y from 2.1% y/y in February, coming in below the consensus (3.3% y/y). The main source of the positive surprise was a smaller-than-expected increase in fuel prices (15.4% m/m vs. forecasted 20%+ m/m). This was most likely related to the inclusion by Statistics Poland of discounts at petrol stations, which, although conditional on participation in loyalty programmes, were nonetheless widely available. Food prices were unchanged on a monthly basis and rose by 2.0% y/y (compared with 2.4% y/y in February). We estimate that core inflation in March remained broadly unchanged (at around 2.5–2.6% y/y). For now, the fuel price shock is not spilling over into other components of the inflation basket. We expect a slight decline in CPI inflation in April, mainly due to the introduction of price cap, cuts in VAT and excise duty on fuels. However, the outlook remains uncertain and sensitive to developments of the conflict in the Persian Gulf and changes in the domestic fuel market. In our view, the MPC should remain in a wait-and-see mode until a potential normalisation in energy commodity markets.
• CEE: Manufacturing PMIs increased across the region in March. The readings were supported by longer delivery times, which - by construction - are interpreted as a sign of stronger demand, even though they stemmed from supply-side disruptions linked to the blockade of the Strait of Hormuz. The details, however, point to emerging signs of genuine improvement. Notably, in Poland, where the manufacturing PMI increased to 48.7 pts from 47.1 pts., the output component rose above 50 pts, signalling expanding production for the first time in 10 months. In Czechia, the PMI rose to 52.8 pts in March, up from 50.0 pts in February, signalling the first expansion in operating conditions since December 2025. New orders returned to growth, with sales increasing at the fastest pace since February 2022. Czech manufacturers also recorded the strongest expansion in production since January 2022. In Romania, the headline PMI rose to 46.6 pts in March, up from February’s record low of 45.3 pts. In line with orders, the pace of decline in production volumes also eased. Across all analysed countries, there were signs of strengthening cost pressures.

THE WEEK AHEAD:

• This week, attention will focus on central bank meetings in Poland and Romania - in both cases, we expect interest rates to remain on hold. In Poland, government shielding measures, combined with lower-than-expected inflation in March, ease pressure on the MPC to raise interest rates.
• Flash CPI readings from Czechia and Hungary will likely show an acceleration in price growth toward 2.0% y/y, driven by recent fuel price increases. In addition, February activity data will be released on Wednesday in Romania and Hungary.