CEE Macro Weekly: Fiscal pressures build across CEE

Download full report with charts and tables

TOP MACRO THEME(S):

• The art of balance on uncertain ground (p.3) – Housing prices are stabilising as demand and mortgage activity recover. With rising incomes supporting demand and supply constraints persisting, we expect moderate house price growth of around 5% over the next year.

WHAT ELSE CAUGHT OUR EYE:

• POL: Moody’s downgraded Poland’s long-term foreign-currency rating by one notch, to A3 from A2, while changing the outlook from negative to stable. This was Moody’s first change in Poland’s rating level since 2002. The rating is now in line with those of Fitch and S&P. The agency justified its decision by the sustained deterioration in Poland’s fiscal position, while its forecasts for the future trajectory of debt and the deficit are similar to ours. Moody’s lead analyst for Poland, H.Peters, said meaningful fiscal consolidation would be difficult before the 2027 elections but should start quickly afterwards to avoid a sharp adjustment and a negative impact on growth. The rating downgrade did not trigger a significant market reaction, as Poland’s fiscal deterioration had already been largely priced in.
• HUN: The MNB kept rates unchanged, as expected, with the base rate at 5.50%. Despite inflation being below target, the bank remained cautious amid high energy prices and geopolitical uncertainty. It maintained its 2026 CPI forecast at 1.8% and raised the 2027 forecast to 3.1% from 2.3%, while inflation is projected to ease towards the 2.5% target in 2028. GDP forecasts were broadly unchanged. Governor M.Varga said the MNB could either keep rates unchanged or cut them in the coming months. From 2028, the inflation target will be lowered to 2.5% ±1pp from the current range 3.0% ±1pp, as another step towards euro adoption. The MNB will also reduce the number of policy meetings to 8 from 12 next year.
• POL: August data painted a mixed but still solid picture of the economy. Retail sales rose by 3.8% y/y, supported by relatively strong demand for durable goods, although slowing real wage growth points to softer consumption momentum ahead. Construction output rebounded by 6.7% y/y after a weak July, supported by stronger civil engineering activity, while building construction remained subdued. Wage growth in enterprises slowed to 5.6% y/y, below forecasts, confirming easing wage pressure, while labour market conditions have so far deteriorated only gradually. Our updated GDP nowcast points to a mild slowdown in growth to 3.4% y/y in 3q26 from 3.9% in 2q26, in line with our main forecast.

THE WEEK AHEAD:

• The most important release will be Poland’s flash CPI for September (Wed.). We expect inflation to accelerate markedly to around 4.0% y/y from 3.4% y/y, driven by an approximately 10% m/m increase in fuel prices. We do not expect core inflation to accelerate, while the favourable impact of falling food prices is likely to fade. The Polish manufacturing PMI (Thu) will be of limited importance, as we see major shortcomings of this index compared with its counterparts in core markets.
• In the rest of CEE, it should be a relatively quiet week. On Wednesday, another estimate of Czech GDP for 2q26 and August monetary aggregates will be released, while Romanian unemployment data are due on Thursday. It will, however, be a busy week in Romanian politics, with a confidence vote on PM-designate S. Muresan’s cabinet, which is crucial for political stability.