CEE Macro Weekly: Global rollercoaster

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TOP MACRO THEME(S):

• What to expect from the unexpected (p. 3) – the overview of possible US tariffs implications for the CEE points to relatively higher exposure of Hungary and Czechia. However, this exposure remains moderate compared to the euro area. Estimated effects on near-term GDP growth range from -0.4 to -0.2pp, amid higher vulnerability of certain sectors, such as automotive, and subject to significant uncertainty depending on various assumptions.

WHAT ELSE CAUGHT OUR EYE:

• ROM: The National Bank of Romania kept interest rates unchanged, including the main rate at 6.50%. In the press release, the Bank maintained its assessment that inflation will fluctuate in 1h25 and decline in 2h25, but the NBR now believes that the price dynamics will be higher than it had projected in its February forecast. Risk factors include future developments in energy and food prices, depending on geopolitical conditions, as well as domestic regulations. The impact of fiscal policy on inflation remains uncertain too. In these circumstances, there is limited room for rate cuts, which we do not expect before August – by then, uncertainty related to the Romanian presidential elections, EU tariff policy, and the NBR’s updated inflation forecast may have been resolved.
• CEE: This week’s March inflation data for part of CEE has been in line with the expectations, except from a downside surprise from Hungary. Inflation in Czechia has been confirmed at 2.7% y/y amid stabilization of core inflation at 2.5% y/y (unchanged from both January and February). The CNB commented that in the following months inflation may fall due to base effects, while it is still premature to look on the impact of trade wars on price growth, as the effect of tariffs alone will be seen in limited category of goods. In Romania inflation eased a bit to 4.9% y/y in March from 5.0% y/y in Feb. Among main categories, the non-food segment was the only one recording decelerating price growth (from 4.8% y/y to 3,8% y/y). Both food and services inflation remained elevated (5.1% y/y and 7.0% y/y respectively) increasing the likelihood of frozen interest rates for now. Inflation surprised on a positive note in Hungary due to welcome slowdown in services amid support from margin caps on food items (more on p.2).
• CAB: Current account surplus in Czechia turned out higher than expected, increasing to CZK 43.8bn in February, translating into 12m rolling surplus of 2.0% GDP, the highest since 2016. Improvement was driven by lower deficit on primary income account, very likely due to lower repatriation of profits. High import-intensity continues to be a mitigating factor in the trade account amid subdued external demand. CA deficit in Poland amounted to EUR 200 mln, translating into a minor 12m rolling deficit (-0,1% of GDP), which is likely to increase to 1% by the end of 2025.

THE WEEK AHEAD:

• Macroeconomic calendar looks rather poor. It includes data on industrial production in Romania, as well as the full estimate for March inflation in Poland. If the flash estimate is confirmed (4.9% y/y) it will mean that in contrast to some forecasts from early 2025, inflation will not exceed 5.0% y/y in any month of this year. In addition, if core inflation falls in line with our expectations (to 3.4% y/y), it will return to the upper band of deviations from the target for the first time since mid-2021.

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