CEE Macro Weekly: The War of the Worlds

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TOP MACRO THEME(S):

• The War of the Worlds (p. 3) – we present a summary of updated quarterly forecasts with a slight downward revision to 2025 growth outlook, and for the first time we present our expectations for 2026.

WHAT ELSE CAUGHT OUR EYE:

• ROM: Government coalition comprising PSD, PNL, USR and UDMR parties has secured a vote of confidence. The coalition is led by PM I.Bolojan (PNL), under an agreement that stipulates a rotation of the premiership prior to the 2028 parliamentary elections. Accordingly, I.Bolojan is expected to step down in April 2027, with a PSD-appointed PM assuming office thereafter. The newly formed cabinet includes 16 ministries (6 allocated to PSD, 4 to PNL, 4 to USR and 2 to UDMR). The coalition agreement outlines a series of fiscal reforms aimed at narrowing the public deficit. Key measures include improving tax collection and cuts in spending. There are no plans to increase a 19% VAT rate (a move recommended by e.g. the IMF), however, VAT and real-estate tax exemptions will be eliminated. The plan also assumes higher excise duty and broadening the healthcare contribution base by introducing health insurance contributions on pensions exceeding RON 4 thous./month. On the expenditure side, the government plans to reduce public sector employment by 20%. The fiscal impact of these measures has not yet been disclosed.
• CZE: Opposition failed to pass a vote of no confidence against the current government. The move was initiated by ANO amid a scandal related to former minister of justice, who was revealed to have accepted a bitcoin donation from an individual convicted of drug trafficking.
• HUN: The MNB kept interest rates unchanged including the base rate at 6.50%, in line with expectations. MNB slashed its GDP growth forecast envisaging economy expanding by 0.8% this year. GDP growth is projected to accelerate to 2.8% in 2026 and 3.2% in 2027, driven by household consumption and a rebound in industrial output. Inflation is expected to remain above the MNB’s target range for the remainder of the year, with a sustainable return to the tolerance band of deviations anticipated in early 2026. Average inflation is projected at 4.7% in 2025, followed by 3.7% in 2026 and 3.0% in 2027. However, risks to the inflation outlook are tilted to the upside. The press release pointed to further stabilization in interest rates. While a rate cut in the autumn cannot be ruled out, geopolitical tensions and the potential inflationary impact of higher oil prices have somewhat reduced the likelihood of such a move.
• CZE: The CNB kept interest rates unchanged, as anticipated, although the tone of the press release turned more hawkish. The CNB no longer assesses the risks to inflation outlook as “modestly” inflationary, but simply as inflationary. While Governor A.Michl did not rule out a rate cut, the probability of such a move in August has declined in our view.

THE WEEK AHEAD:

• Next week will bring preliminary inflation estimates from Poland (Mon.) and Czechia (Fri.). On Tuesday, attention turns to the release of PMI data across the region. In Poland, the spotlight will be on the MPC meeting, accompanied by the publication of the new inflation and GDP projection. While we expect no change in interest rates at this meeting, the new projection should support our baseline scenario of a rate cut in September.