CEE Macro Weekly: Spring has revived the doves

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TOP MACRO THEME(S):

• A Dove leading the Doves (p. 3) – While the NBP left interest rates unchanged, favorable inflation data prompted a downward revision to its forecast and a surprising dovish shift in the MPC stance, which makes our scenario of lower rates in July certain, while a cut in May would not surprise us.

WHAT ELSE CAUGHT OUR EYE:

• CEE: March PMI indexes confirmed a nascent recovery of the manufacturing sector in Poland, softening of the downturn in Czechia and further contraction in Romania. The intensification of cost pressure was widespread, although in case of Poland it was partially tamed by the strength of the zloty. At the same time business confidence in a year-ahead perspective improved in all of these economies backed by optimism with regard to domestic demand and recovering European markets (more on p.2).
• CEE: As part of the “Liberation Day” D.Trump announced a wide range of reciprocal tariffs, including a 20% tariff on the EU. Direct exposure of the CEE to trade with US is limited, however, much less so through reexports from other countries. In response to this decision Poland’s prime minister, D.Tusk, said that new tariff may lower Poland’s GDP by approx. 0.4%. Czechia and Hungary seem to be more exposed to tariffs through higher reliance on the automotive industry, in particular as part of the value chains embedded within the German economy.
• CEE: According to preliminary estimate for March, inflation in Poland stabilised at 4.9%, while its average level in 1q25 was much lower (by 0.5pp) than the NBP assumed in its projection. In addition, core inflation has likely fallen towards the upper band of deviations from the target (3.5% y/y) for the first time in more than three years. In contrast, inflation in Czechia surprised on a negative note, although it is still much lower than in Poland, at 2.7% y/y. Data should not exclude a rate cut by the CNB in May.
• CZE: S&P affirmed Czechia’s rating at AA- with a stable outlook. Decision was backed by strong government and external balance sheets. The agency stated that the rating could be lowered if Czechia would be significantly affected by the global trade frictions and in case if the automotive sector would fail to adapt to technological challenges and increased competition. In the opposite scenario the rating could be revised upwards, however, we perceive the latter condition to be relatively hard to fulfill in the short-term.

THE WEEK AHEAD:

• To complete inflation data for March, readings from Hungary (Tue.) and Romania (Fri.) will be published as well as full estimate for Czechia. Since the beginning of the year price dynamics in Hungary have surprised on a negative note, prompting upward revisions to inflation outlook. March reading will partially reflect the introduction of cap on profit margins on essential food items, which according to economy minister M.Nagy would bring March inflation down to around 5% y/y (from 5.6% y/y in February). In Romania inflation may decelerate to approx. 4.9% y/y (from 5.0%) in Feb., however, the NBR is wary of its bumpy road ahead and shall keep rates unchanged on Monday. Next week will also bring data on current account balances in Czechia, Romania and Poland (February readings), with the first one most likely recording another month of surplus. Economic calendar also includes data on retail sales in Hungary and Romania.

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