CEE Macro Weekly: Temporary pause or turning point?

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TOP MACRO THEME(S):

• Broad hawkish wings (p. 3) – The Polish MPC kept NBP rates unchanged, with the key policy rate at 5.25%. The unusually brief press conference by governor A.Glapinski struck a hawkish tone.
• Investment on the rise in 1q25 (p. 4) – GDP growth in 1q25 was marked by a surprisingly strong rebound in investment, likely underpinned by defence-related expenditures. While external headwinds pose some risks to the outlook, we still predict that resilient domestic demand will provide sufficient support for a moderate acceleration in full-year GDP growth to 3.3%.

WHAT ELSE CAUGHT OUR EYE:

• POL: K.Nawrocki, a candidate backed by the Law and Justice party (PiS), won Poland’s presidential election, defeating R.Trzaskowski (Civic Coalition). Key presidential powers include the legislative veto, the appointment of the NBP Governor, and the nomination of 3 out of 9 members of the Monetary Policy Council (see our Macro Flash: The New President and record voter turnout). PM D.Tusk announced that he would ask the parliament for a vote of confidence, in order to show the unity of the coalition. The vote is expected to take place on June 11. If the government fails to win the vote of confidence, the President has the authority to nominate a new PM. However, forming a new coalition in the current parliament would be difficult, making early elections likely. If the government succeeds, it will be forced into difficult cohabitation with the President, facing the risk of presidential vetoes, while the coalition lacks the majority to override. PM Tusk has pledged that the government will accelerate the implementation of its promises. This implies an increased risk of looser fiscal policy and a much shallower fiscal consolidation. In turn, this may limit room for NBP interest rate cuts.
• POL: According to the three main rating agencies (S&P, Moody’s, and Fitch), K.Nawrocki’s victory deepens the political impasse and limits the possibility of implementing reforms and fiscal consolidation.
• CZE: The government finalized a EUR 16.3bn agreement with Korea’s KHNP to build two new 2.1GW reactors at the Dukovany nuclear plant. Construction of the first unit is set to begin in 2029 and complete by 2036. The site currently operates four 510 MWe reactors.
• ROM: The European Commission urged Romania to urgently reduce its elevated fiscal deficit (9.3% of GDP in 2024), waring of an ‘obvious risk’ that the deficit will remain above the 3% threshold through 2030. Persistent inaction raises the likelihood of EU funds being frozen next year absent credible consolidation measures.

THE WEEK AHEAD:

• Next week’s calendar in the CEE region will be dominated by inflation releases. In Poland, the final May CPI reading will be published (flash estimate: 4.1% y/y), alongside inflation prints in Romania and Hungary, including core inflation. Additional data include current account figures for Poland and the Czech Republic, as well as Czech unemployment. On the political front, the Polish Parliament will hold a vote of confidence for PM D.Tusk on Wednesday.

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