CEE Macro Weekly: If not inflation, the fiscal policy is a challenge

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TOP MACRO THEME(S):

• Limited room for cuts in the CEE, except for Poland (p. 3) – Recent inflation and labour market data convinced us to factor in a rate cut by the NBP already at the September meeting, with a significant likelihood of a similar move in November. In contrast, we see no room for a rate cut in the rest of CEE until 2026.

WHAT ELSE CAUGHT OUR EYE:

• POL: The 2026 budget bill signals a more expansionary fiscal stance. The state deficit is planned to narrow to 6.5% of GDP vs 7.3% in 2025. The general government deficit in relation to GDP will widen from 6.6% in 2024 to 6.9% in 2025, before narrowing to 6.5% in 2026. Public debt will rise sharply from 55.3% of GDP in 2024 to 60.4% in 2025 and 66.8% in 2026. More on page 2.
• CZE: Revised GDP growth estimate for 2q25 showed an acceleration against 1q25, to 2.6% y/y from 2.4% y/y – the initial estimate pointed to stabilisation of growth at 2.4% y/y. Economy expanded against the previous quarter by 0.5% (sa). Growth has been driven by final consumption and inventories, amid a negative impact from investment and net exports.
• POL: 2q25 brought a long-awaited rebound in corporate revenues among firms with 49+ employees. After nearly two years of declines, revenues rose by 5.1% y/y in 2q25. However, cost growth proved stronger (+5.5% y/y, driven mainly by rising labor costs), resulting in a 4.4% y/y decrease in net financial result (to 58.0bn PLN). Corporate investments increased by 1.2% y/y in 2q25, following a 3.6% y/y contraction in 1q25, thus marking the end of a 1.5-year downturn in private investment. In 2h25, further acceleration in investment growth is anticipated.
• POL: According to the LFS survey, the unemployment rate in 2q25 declined to 2.8% from 3.4% in 1q25 and 2.8% in 4q24. The decrease was broad-based among different groups. The number of unemployed, as measured by LFS, declined to 503k in 2q25, broadly in line with 4q24 (495k), after a temporary increase to 600k in 1q25. At the same time, employment rose to 17.198m (+138k q/q), reflecting both the reintegration of unemployed individuals into the labor market and an increase in labor force participation (+41k q/q). Consequently, the activity rate inched up to 58.3% in 2q25, compared with 58.2% in 1q25. Overall, the 2q25 LFS data suggest that the unexpected rise in unemployment at the beginning of the year was more of a statistical noise than a sign of a meaningful deterioration in labor market conditions.
• HUN: The government decided on the extension of margin caps on essential food and personal hygiene products till the end of November. Initially the cap was to be maintained by the end of August. According to the MNB’s estimates, margin caps lowered inflation by 1.5pp.

THE WEEK AHEAD:

• Our focus next week will be on the MPC meeting in Poland, which in our view will result in a rate cut of 25bp. On Friday, Fitch will decide on Poland’s credit rating. This will be the first time a major agency will assess the draft budget for 2026. At the start of the week, PMI indices for the region will be released. Also, worth noting will be the full 2q GDP estimates for Poland, Hungary, and Romania, as well as the flash August inflation estimate in Czechia.