CEE Macro Weekly: No signs of cooling

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TOP MACRO THEME(S):

• Bulletproof (p.3) – May data showed strong economic performance, with industrial output beating forecasts, investment activity remaining robust and retail sales improving, while consumer conditions stayed healthy. The war-related supply shock has had only a limited impact on growth. Poland’s economy remains resilient, and GDP growth in 2q26 is likely to match the 3.5% y/y recorded in 1q26.

WHAT ELSE CAUGHT OUR EYE:

• POL: I.Linnell (President of Fitch Ratings) indicated that the main risk to Poland’s credit rating is its public finances. The agency maintains a negative outlook on the A− rating due to the high fiscal deficit (6‑7% of GDP) and rapidly rising public debt, which could soon reach around 70% of GDP. Fitch currently sees no signs of debt stabilisation, sustaining pressure for a potential downgrade. The agency’s president stressed that an improvement in the rating outlook depends on stabilising public finances and halting the increase in debt. Fitch emphasises that it is not so much the absolute level of debt that is critical, but rather the pace of its increase. In the past, a rise in debt from around 60% of GDP towards 90–100% of GDP has often led to rating downgrades in other countries. We do not expect any negative rating actions this year.
• HUN: The MNB cut its policy rate by 25bp to 6.00%, in line with expectations . The decision was supported by a marked improvement in the inflation outlook, with headline CPI inflation at 1.8% y/y in May and core inflation at 2.0% y/y, as well as the recent decline in oil prices. The decline in the risk premium on Hungarian assets, supported by the agreement with the European Commission on EU funds, was also viewed positively. The MNB revised down its inflation forecast and remains relatively optimistic about the economic growth outlook. The central bank expects average annual inflation of 1.8% in 2026, followed by 2.3% in 2027 and 3.0% in 2028. At the same time, it forecasts GDP growth of 2.0% in 2026 and 3.0% in 2027, driven by a recovery in household consumption and the gradual inflow of EU funds. The MNB signalled the possibility of further rate cuts over the summer, with scope for two additional moves.
• HUN: Headline inflation will remain below the 3.0% medium-term target until 2q28 , according to the updated forecasts of the National Bank of Hungary published in the Inflation Report . The inflation outlook improved compared with the previous forecast, supported by forint appreciation and the de-escalation of the conflict with Iran. The MNB expects headline CPI to remain around the lower bound of the tolerance corridor, close to 2%, for the rest of the year. Moreover, inflation is expected to remain below the medium-term target even if margin restrictions are lifted.
• POL: The World Bank sees ( report ) AI as a potentially meaningful upside risk to Poland’s long term growth. Raising AI adoption from 8.4% today to almost 45% by 2035 could lift GDP by 1.3-12.1% vs a no-change baseline. The upper end should be treated an ambitious scenario, conditional on rapid adoption, strong investment and high labour mobility. Lower labour mobility would reduce GDP gains and amplify employment losses.

THE WEEK AHEAD:

• The key event of the week will be the flash CPI inflation reading for June in Poland. We expect it to fall to 2.7% y/y from 3.1% y/y, mainly due to fuel prices.