CEE Macro Weekly: Poland’s acceleration on the final stretch of 3q25

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TOP MACRO THEME(S):

• Strong finish to a solid quarter (p. 3) – Monthly economic activity data for September surprised on the upside prompting us to revise up our 3q25 growth estimate to 3.9%.

WHAT ELSE CAUGHT OUR EYE:

• CEE: Eurostat published general government fiscal data as of the end of 2q25. With regard to fiscal deficit further deterioration was recorded in Poland, to 7.0% of GDP (on a rolling 4-quarter basis, nsa), amid systematic improvement in Hungary, to 3,4% of GDP. Czechia maintains the lowest deficit in the region, at 2.1% of GDP. Romania sits at the other end of the spectrum, with the highest deficit at 9.3% of GDP. In Romania, the revenue-to-GDP ratio remains the lowest in the region, at nearly 35% of GDP (the regional average exceeds 40%). The new government has undertaken a number of measures aimed at increasing budget revenues, including raising the VAT rate and excise duties, as well as increasing the dividend tax (the latter only from 2026). Meanwhile, the expenditure-to-GDP ratio in Romania is the second lowest in the region (44.4% of GDP), although it is on an upward trend. Since the beginning of 2024, the expenditure-to-GDP ratio has also been rising in Poland and, by the end of 2q25, was at 50% of GDP – the highest in the region.
• HUN: The MNB kept interest rates unchanged, including the base rate at 6.50%. The decision was in line with expectations, and the section of the press release concerning the monetary policy outlook did not change materially. During the press conference Governor M.Varga emphasized that monetary policy guidance has not changed. The MNB reaffirmed that a careful and patient approach to monetary policy remains necessary due to risks to the inflation environment. In policymakers’ view, maintaining tight monetary conditions remains warranted. In 3q25, inflation in Hungary was stable but elevated at 4.3%, despite administrative measures capping margins on certain products. In our view, consumer price inflation will remain in the 4-5% range through year-end, though a risk factor for the December reading is whether the margin caps, which are due to expire in November, are extended. In his recent appearance before the parliamentary economic committee, MNB Governor M. Varga emphasized the beneficial impact of the forint’s exchange rate on inflation, which will support disinflation in the elevated price categories – namely food and services – over the coming months. However, bank officials remain cautious about the potential negative effects of any exchange-rate depreciation, given the stronger pass-through in recent years. Some recent remarks by government representatives pointed to growing pressure on the central bank to cut interest rates. A return of inflation to the target’s tolerance range appears possible in early 2026, therefore, we pencil in the earliest resumption of Hungarian rate cuts for 1q26.

THE WEEK AHEAD:

• Next week there may not be that many releases, but they will concern key variables. On Thursday we’ll get the preliminary GDP estimates for Czechia and Hungary (3q25). In both cases, we expect an acceleration versus 2q25 to 2.4% y/y in Czechia and 1.4% y/y in Hungary. The week will conclude with the flash estimate of October inflation in Poland – crucial for the November MPC meeting, whose outcome remains highly uncertain (as of now we expect a rate cut). We expect a slight increase in price growth to 3.0% y/y.