CEE Macro Weekly: Healthy economy with unhealthy public finances

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TOP MACRO THEME(S):

• Developing to become developed (p.3) – Economic activity improved across most CEE economies in 2q26, with Hungary recording the strongest acceleration while Poland and Czechia maintaining solid growth. Romania remained the clear exception, as fiscal consolidation continued to weigh on domestic demand.
  
  

WHAT ELSE CAUGHT OUR EYE:

• HUN: The MNB cut the base rate by 25bp to 5.75%, citing a sharper-than-expected decline in CPI inflation, which eased to 1.7% y/y in June from 1.8% y/y in May, while core inflation remained unchanged at 2.0% y/y. The Hungarian central bank expects inflation to stay below the 3% target until the end of 2027 and to return to it only in 1q28. The MNB assessed that the economic outlook remains broadly in line with the June projection. It also noted a continued decline in the risk premium (following the parliamentary elections), which supports monetary easing. If favourable conditions persist, policymakers see scope for another rate cut as early as August. Further decisions will depend on the September Inflation Report, as well as geopolitical and fiscal developments.
• CEE: General government debt (EU methodology) at the end of 1q26 stood at 44.1% of GDP in the Czechia, 61.0% of GDP in Poland, 60.0% of GDP in Romania, and 79.0% of GDP in Hungary. Poland's general government deficit reached 7.1% of GDP, the highest level in the EU. It was followed by Romania (6.7% of GDP) and Hungary (5.6% of GDP), while the deficit in the Czech Republic was just 2.2% of GDP. The highest levels of public investment were recorded in Romania (5.4% of GDP), Czechia (5.3% of GDP), and Poland (5.1% of GDP), with the lowest in Hungary (3.6% of GDP). Expenditure on social benefits is increasing in Poland and Hungary, while declining in Czechia and Romania. On the revenue side, the most notable improvement has been seen in Romania (following tax rate increases in 2025), as well as in Poland and Hungary, whereas revenues in Czechia have remained stable. The region's fiscal picture remains mixed – Poland and Romania continue to post high deficits, although Romania is gradually reducing its fiscal imbalance. Hungary has maintained relative stability despite plans for further expenditure growth, while Czechia remains the closest to fiscal balance.
• HUN: The central government budget deficit amounted to HUF 3.38tn after 1h26, equivalent to 80.2% of the full-year target and representing a 21.9% y/y increase. This implies that the full-year deficit target will need to be revised as part of a comprehensive amendment to the 2026 budget plan, which is due to be presented by the end of August. Prime Minister P.Magyar assessed that the general government deficit could amount to around 7.5% of GDP in 2026. He also declared a gradual fiscal consolidation, with the deficit falling below 6% of GDP in 2027 and to 3% of GDP by 2030.
  
  

THE WEEK AHEAD:

• The coming week in the CEE region will bring GDP numbers for 2q26 from Czechia and Hungary as well as flash CPI figure for July from Poland. We expect GDP growth in Czechia and Hungary has accelerated. In case of Poland’s CPI for July, we see a jump to over 3% y/y from surprisingly low print at 2.5% y/y in June due to increase in fuel prices following the end of government fuel support and a renewed rise in oil prices as conflict in the Middle East re-ignited.