CEE Macro Weekly: Inflation up, GDP growth down

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TOP MACRO THEME(S):

• Macro and geopolitical scenario update (p.3) – We present a sneak peek of changes to the assumptions for the macroeconomic scenario for Poland, stemming from the implications of the conflict in the Middle East. At the same time, we announce a full update on the Polish economy, which will be published next week.

WHAT ELSE CAUGHT OUR EYE:

• HUN: The MNB presented its latest inflation and GDP forecast, with the horizon extended to 2028 (vs. 2027 previously), incorporating the impact of a supply shock triggered by the war in the Middle East. The inflation path has been revised upward for both 2026 and 2027 (to 3.8% from 3.2% and 3.7% from 3.3%, respectively). The forecast for this year is very close to our expectations. At the same time, in the final year of the projection, the bank expects average annual inflation to be in line with the inflation target at 3%. Inflation will rise above the tolerance band from 3q26 and will only return to target on a sustained basis in 2h27. In its assumptions regarding commodity prices, the MNB relies on futures contracts, which point to a gradual decline in oil prices over the summer (provided that the military conflict ends within a few weeks), while oil and gas prices may normalize by mid-2027. Although this is currently of limited importance, the bank noted that due to favourable repricing at the beginning of the year, the starting point of the March projection was lower than expected in December. The impact of the conflict on prices is, of course, partially mitigated by price caps on fuel prices and margin restrictions, which are set to expire in mid- or late May. The GDP forecast has been revised downward, primarily for 2026, to 1.7% from 2.4% previously. The main driver of growth over the forecast horizon will remain consumption, supported by real wage growth, income-boosting fiscal measures, and the drawdown of savings. Throughout the projection horizon – unlike in previous years – investment will also contribute to growth, mainly due to a pickup in household investment.
• POL: The government has announced the introduction of fuel price caps and a reduction in taxes imposed on fuels – cutting VAT rate to 8% from 23% and lowering excise duty to the minimum level permitted in the EU. Altogether, this is expected to reduce prices by approximately PLN 1.2 per liter. At the same time, to ensure that tax cuts are effectively passed through to retail prices, the maximum price will be set daily by the Minister of Energy. The changes could come into force as early as before Easter. The Minister of Finance stated that lowering the VAT rate on fuels will cost the budget PLN 900 mn per month, while the excise duty reduction will cost PLN 700 mn per month. To partially offset this fiscal cost, the government is also planning to introduce a windfall tax on fuel companies.

THE WEEK AHEAD:

• The most noteworthy release will be the flash estimate of Polish CPI inflation for March. In our view, due to the surge in energy commodity prices inflation may have accelerated close to the upper band of deviations from the NBP target (~3.5% y/y). In addition, March PMI indicators for the region will also be released – sentiment has most likely remained subdued due to the conflict in the Middle East.