CEE Macro Weekly: Industry is shying away from expansion

Download report

TOP MACRO THEME(S):

• Fifth rate cut and a projection suggesting more to come (p. 3) – The MPC delivered its fifth rate cut this year, lowering the NBP reference rate to 4.25%, while the new projection points to inflation nearing the 2.5% target by 2027 and a “Goldilocks” scenario of moderating inflation and steady growth.

WHAT ELSE CAUGHT OUR EYE:

• CZE: The CNB left interest rates unchanged for the fourth consecutive meeting, keeping the policy rate at 3.5%, in line with expectations. The decision to maintain a restrictive policy stance is justified by inflation still exceeding the target (in October it surprised to the upside, rising to 2.5% y/y) and by the ANO party’s announcements of higher fiscal spending. In the press release the Board continued to emphasize that risks to the outlook remained inflationary overall, due to tight labour market, inertia in elevated service inflation and potential fiscal stimuli. The tone of the A.Michl’s press conference was consistent with the hawkishness of the press release. Decision was accompanied by new inflation and GDP projection, which showed a downward revision of GDP growth (to 2.3% in 2025 and 2.4% in 2026), and upward changes in inflation forecast. However, projection does not include a delay in the ETS2 or fiscal plans of the government. In the former case, average inflation forecast in 2027, which currently stands at 2.5% could be lower by 0.4pp, which was the scale of impact of ETS2 on inflation previously estimated by the CNB. In terms of GDP, expectations for 2025 were lowered on the back of worse external environment, while 2026 figure was revised down due to expectations of weaker inventories. The CNB is the only central bank in the CEE-4 region that publishes the interest rate path assumed in its projection; in the autumn edition it included a hike in 3q26. However, this is a model path, not forward guidance – taking into consideration the projection, the press release, and the tone of the press conference, we assume interest rates will remain stable for a long time.
• CEE: October brought a deterioration of PMI in Czechia and Romania, amid its further improvement in Poland, however, indexes in all these economies remained in the contraction territory. In Czechia, PMI fell to 47.2 pts in October from 49.2 pts in September, and despite expectations for some minor increase. Deterioration was broad-based and future outlook was the worst since the end of 2024. It cannot be ruled out that the relatively good industrial performance, driven by the front-loading of orders, has come to an end, and that the problems of the German manufacturing sector, which are related, among other things, to Chinese restrictions on rare-earth exports – are now coming to the fore. In Romania PMI reported the steepest decline since March, to 47.6 pts from 49.8 pts, in particular new orders returned below the 50pts threshold, after brief recovery in September. In Poland, the upward PMI trend that has persisted since July continued, with 4 out of 5 sub-indices contributing positively in October. The future output index reached its highest level since March.

THE WEEK AHEAD:

• While Poland will be celebrating Independence Day on Tuesday, we’ll get October inflation data from Czechia and Hungary (in the former case, the full estimate), followed by prints from Romania and Poland (full estimate). On Wednesday, the NBR decision will take place (we do not expect a rate change). The GDP estimates for 3q25 (from Poland and Romania) will be interesting, similar to current account data (more on p.4).