CEE Macro Weekly: The hawks are circling overhead

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TOP MACRO THEME(S):

• Hawkish signals from CNB and NBP  (p.3) – Governors of both the CNB and NBP struck a hawkish tone at their press conferences, signaling that the next move could be a rate hike. This is still not our base-case scenario.

WHAT ELSE CAUGHT OUR EYE:

• ROM: The government was dismissed after a motion of no confidence passed. The motion was filed by the senior ruling party, the PSD, together with the nationalist AUR. President N.Dan is expected to invite parties for consultations in an effort to preserve the pro-European coalition under a new Prime Minister, who must be nominated within the next 10 days. The president may make two consecutive nominations for prime minister within a maximum period of 60 days. Only if both fail to secure a vote of confidence can he dissolve parliament and call early elections. At this stage, the most likely scenario appears to be a minority government led by the PSD. Previously there was a chance for the continuation of the ruling coalition under a Prime Minister other than I.Bolojan, but still from the PNL, but became much less probable as the PNL has moved into opposition. Since the domestic turmoil began, the RON has depreciated by nearly 3% and breached 5.20 against the euro.
• HUN: According to P.Magyar, the fiscal deficit could reach 6.8% of GDP in 2026, compared with the currently planned 5% and the initial target of 3.9%. The potentially larger budget gap was identified in documents received from the outgoing government, which had allegedly planned to spend as much as possible before the end of its term and had also committed to new expenditure. P.Magyar threatened legal action if the government failed to limit spending to what is necessary for the smooth functioning of the state. The higher deficit increases the risk of stricter measures by the European Commission under the Excessive Deficit Procedure. In February, the EC recommended that Hungary correct its excessive deficit by 2026.
• CZE: Prime Minister A.Babiš announced that the deficit could widen in 2027 due to increased investment in healthcare and transport infrastructure. At the same time, the government is working on excluding selected investments, such as roads, railways and nuclear power, from fiscal rules. Prime Minister suggested that fiscal consolidation may only take place in 2028, once major investment projects are under way.

THE WEEK AHEAD:

• Today, S&P will announce its rating decision on Poland. It is the only agency that has not revised the outlook on Poland’s rating to negative so far.
• The next week will bring a range of interesting data and policy decisions. The NBR will announce its interest rate decision on Friday. Given the domestic political turmoil, which has already affected the exchange rate, we do not expect any change in rates. Among economic data from CEE, the key focus of attention will be on preliminary GDP data for Romania (on Wednesday) and Poland (on Thursday). In case of Romania, we expect annual growth rate to slip into the negative territory, to around -0.3%. As for Poland, we expect growth to slow to 3.4% from over 4% in the final quarter of 2025.