CEE Macro Weekly: Happy New Year!

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TOP MACRO THEME(S):

• What to expect in 2025 (p. 3) – New Year, a new Macro Weekly. With this issue we switch to a new format in which we cover macro news not only from Poland but also from Czechia, Hungary and Romania. Our crystal ball tells us that 2025 will be marked by accelerating economic activity in the CEE, while disinflation will continue on a bumpy track. Politics will be one of the main topics of 2025, possibly outshining resumption of monetary easing.

WHAT ELSE CAUGHT OUR EYE:

• CEE: First piece of macro data in 2025 marked a deterioration of sentiment (as measured by PMI) in manufacturing in Poland, Czechia and Romania at the end of 2024. Activity remained subdued amid continued fall in new orders. Outlook improved in Poland and Czechia, although in the latter one it did not translate into an increase in staffing. Job shedding continued also in Romania. Some improvement was recorded in Hungary, however, the correlation with data on industrial production is relatively weak (more details on p.2).
• CEE: November data on industrial output in Czechia and Hungary turned out worse than expected pointing to the persistence of problems related to weak external demand. Automotive sector and electromobility sector respectively remain the main drags on activity. Against this background retail sales performed well both in Hungary and in Romania, with the latter one seeing resilient demand in the durable goods segment (more details on p.2).
• CZE: CNB governor, A.Michl, reiterated his view that fiscal policy is the biggest risk to inflation in 2025. With this regard he expressed that some redundancies in the public sector are necessary in order to lower spending.
• CZE: Prime Minister, P.Fiala, stated that defence spending will realistically  reach 3% of GDP in several years. His comment was made in response to D.Trump’s request to NATO members to spend at least 5% of GDP on defence.
• ROM: Finance Minister, T.Barna, said that budget deficit in 2024 may reach 8.7% of GDP, reassuring that it will not exceed 9%. The result is significantly higher than 7.9% of GDP submitted to EC in late October as part of the fiscal consolidation plan, and 5% estimated at the beginning of 2024. T.Barna committed not to increase VAT rates in 2025.

THE WEEK AHEAD:

• The MPC meeting will be in the spotlight in Poland, however, no change in interest rates is widely expected. With this regard the press conference of the NBP’s Governor will be most important, in particular whether he maintains his hawkish stance from December, when he delayed the horizon for rate cuts even to 2026. Apart from that, Polish calendar includes CAB data for November and the full reading of December CPI inflation, followed by its core measure (more details on these publications can be found in the calendar on p.5).
• At the beginning of the week, CPI inflation data (December reading) will be published for Czechia and Romania. We expect an acceleration of price growth in Czechia, slightly above the upper band of deviations from the target. A mild slowdown in price dynamics may be recorded in Romania, however, it should not affect the decision of the NBR, which is scheduled for Thursday. Amid elevated inflation and high political uncertainty interest rates shall remain flat. In this context publication on wages growth in November will be noteworthy. CAB data for Czechia and Romania will be of secondary importance.

Drukuj