CEE Macro Weekly: Political and macro surprises

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TOP MACRO THEME(S):

• Don’t trust the polls (p. 3) – Last week brought results of the first round of presidential election in Poland and of the second round in Romania. Both outcomes came out as surprises compared to the pre-election polls.

WHAT ELSE CAUGHT OUR EYE:

• CEE: According to the Spring 2025 Economic Forecast published by the European Commission, Poland is expected to perform relatively well compared to its regional peers in terms of economic growth and macro stability in 2025 and 2026. Poland’s economy is projected to continue its solid growth trajectory (3.3% in 2025, 3.0% in 2026), driven primarily by robust domestic consumption, resilient investment activity, amid a well-diversified economy. Meanwhile, Czechia and Hungary face more moderate growth forecasts (Czechia: 1.9% in 2025 and 2.1% in 2026; Hungary: 0.8%, 2.5%). Czechia's moderate growth outlook is primarily linked to subdued investment sentiment. In Hungary, low investment, persistent inflationary pressures, ongoing fiscal consolidation, elevated public debt, and monetary policy constraints collectively weigh on its near-term growth potential. Romania, while showing signs of economic recovery supported by domestic demand and infrastructure projects, remains vulnerable to political uncertainty, particularly related to presidential elections, potentially affecting investors’ confidence and fiscal discipline, which makes economic outlook highly uncertain (GDP growth at 1.4% in 2025, 2.2% in 2026). Overall, the economic outlook for CEE in 2025–2026 reflects a moderate yet steady recovery path, supported by strengthening consumption and investment activity across the region. While challenges such as inflation, political uncertainty, and fiscal pressures persist, the forecast highlights the region's gradual return to more balanced growth trajectories, with some variation in performance among individual countries. Falling inflation across the region is expected to create room for interest rate cuts.
• ROM: NBR expects CPI inflation to stay above the target throughout 2025. By the end of 2q25, inflation is projected at 5.1%, easing to 4.6% by year-end, still well above the previous forecast of 3.8%. NBR now sees inflation returning to its target range only in 3q26. Throughout 2025, inflation is set to remain elevated, with disinflation proceeding more slowly than previously anticipated. Isarescu (NBR Governor) hasn’t ruled out rate cuts in 2h25, but says that the decision will depend on several conditions: more stable financial markets, improved liquidity, renewed capital inflows, and better investor confidence in Romania.
• POL: Minister of Finance, A.Domanski, informed that the VAT gap narrowed to 6.9% in 2024 from 13.5% in 2023.

THE WEEK AHEAD:

• Monday will bring additional data on economic activity in Poland i.e. retail sales in April. We expect to see an acceleration to 3.4% y/y on the back of the Easter effect. On Friday, we’ll get the initial reading of CPI inflation in May, which may remain close to that from April (4.3% y/y). At the end of the week a revised GDP growth data for 1q25 in Czechia will be published (initial estimate stood at 2.0% y/y). MNB will decide on its monetary policy on Tuesday. New projection with a higher inflation forecast limits room for cuts, which in our opinion may only appear at the turn of 3q and 4q25.