CEE Macro Weekly: Polish economy in a deep freeze – but just temporarily

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TOP MACRO THEME(S):

• An economic Ice Age in January (p.3) – Economic activity data for Poland in January turned out weaker than expected. Employment data cast doubt on the forecast of a slight increase in employment for the whole of 2026.

WHAT ELSE CAUGHT OUR EYE:

• ROM: As expected, the NBR left interest rates unchanged, with the monetary policy rate at 6.50%. The final part of the press release, which contains a brief justification of the decision and some future guidance, remained unchanged. According to the latest Inflation Report, price growth will continue to decline in 1q26, then increase due to, among other factors, base effects related to a significant fall in natural gas prices, and in 3q26 it will undergo an abrupt downward correction as the effects of two significant supply shocks (energy price hike and VAT rate increase) are to fade away. Around 2q27, inflation should fall within the target variation band. In the NBR’s assessment, inflation risks remain unchanged and continue to include primarily further measures related to budget consolidation, as well as geopolitical tensions. The inflation path in the new projection has been slightly revised upward compared with the November edition, most notably for 1q26 and 2q26, by 0.6pp and 0.4pp respectively, to 9.8% y/y and 4.4% y/y (end of period). The revision stemmed from larger contributions from core inflation as well as, to some extent, from natural gas, tobacco products and administered prices. Inflation is projected to reach 3.9% y/y at end-2026 and 2.9% y/y at end-2027. At the same time, during the press conference, Governor M.Isarescu assessed that although this is not incorporated in the projection, the temporary increase in inflation in the spring may be avoided, as the expired price caps on natural gas are – according to the Minister of Energy – to be replaced by an administered price mechanism that will mitigate price pressures. We maintain our view that an interest rate cut could occur no earlier than 2q26.
• ROM: Fitch Ratings has affirmed Romania’s credit rating at BBB- with a negative outlook, which reflects continued deterioration of public finances. Factors that could lead to a downgrade of rating include failure to implement additional fiscal consolidation measures that would stabilise debt or worsening of external financing conditions. Meanwhile steady progress in fiscal consolidation and improvement in external balance could lead to positive rating action. In the agency’s assessment, the ESA deficit may decrease by 2% of GDP in 2026. At the same time, high uncertainty related to fiscal consolidation in 2027 and beyond was emphasized, due to the planned change in premiership in April 2027 and the 2028 electoral cycle.
• HUN: The head of Prime Minister’s office, G.Gulyas, confirmed that the government had released strategic oil reserves following the suspension of supplies through the “Druzhba” pipeline, which was damaged as a result of another Russian attack on Ukraine.

THE WEEK AHEAD:

• The most interesting event next week will be the decision-making meeting of the Hungarian National Bank (Tues.). We do not rule out that the favourable January inflation reading may prompt the MNB to adopt a bolder tone regarding the possibility of a rate cut in the near future. However, we assume that February will not bring any change in interest rates. On Friday, Fitch will make a decision regarding Poland’s credit rating; we do not expect any changes (A-, negative outlook).