CEE Macro Weekly: Unsettled skies in August

Dowload report

TOP MACRO THEME(S):

• Mixed signals on investment activity (p. 3) – The data for August sends mixed signals regarding investment activity. While industrial production results point to a recovery in investment, construction and assembly output indicates a decline in activity.

WHAT ELSE CAUGHT OUR EYE:

• POL: In August, the average gross wage in the enterprise sector increased by 7.1% y/y (vs. 7.6% y/y in July), significantly below expectations that stood at 8.0% y/y. The nominal wage growth was the lowest since February 2021. Real wage growth declined again, although it remained solid, slightly above 4% y/y. Average employment in the enterprise sector fell by 0.8% y/y, in line with expectations, compared to a 0.9% y/y decrease in July. The August labour market data points to continued weakness in labour demand, alongside easing wage pressure. Its overall tone supports interest rate cuts, as it signals a potential weakening of the impact of labour costs on prices.
• POL: CPI inflation fell to 2.9% y/y in August, down from 3.1% y/y in July. The final data came in 0.1 pp above the flash estimate, but in line with our original forecast. The rate of increase in service prices continued to outpace that of goods, although it slowed to 6.0% y/y from 6.2% y/y in July. Core inflation declined slightly (see page 3 for details). Although the final CPI reading was a tad above the flash estimate, it does not alter the overall positive message — inflation is near the NBP’s target and is expected to remain close to it in the coming quarters.
• ROM: Moody’s agency reaffirmed Romania’s sovereign rating at Baa3 with the negative outlook. Outlook remained negative due to risks related to ambitious fiscal consolidation plans, which include uncertain political backing and negative impact on GDP growth of the consolidation measures. However, the agency assessed that the measures implemented in July and August improved the fiscal outlook and their combined impact on deficit in 2025 and 2026 exceeds 3% of GDP. The deficit forecast for 2026 was revised to 6.1% of GDP from 7.7% of GDP expected in March, while it has been assumed that in 2027 the deficit will decline further. Moody’s emphasized that the credit profile is subject to elevated exposure to geopolitical risk due to proximity to the war in Ukraine. Outlook could be upgraded to stable if the fiscal consolidation plan adopted in July and September would be implemented fully and effectively. Otherwise, if key fiscal metrics evolved materially worse than the agency currently expects, rating would likely be downgraded.
• POL: Fitch rating downgrade within the next six months is unlikely, unless there is a further deterioration of the fiscal or macroeconomic situation, according to M.Trajkovic, Fitch’s lead analyst for Poland. He emphasized that the negative outlook reflects the most probable trajectory for the rating over the next few years. On the other hand, a return to positive outlook could occur if the probability of implementing fiscal consolidation measures increases, resulting in a stabilization of the general government debt-to-GDP ratio.

THE WEEK AHEAD:

• The MNB (Tuesday) and CNB (Wednesday) are expected to leave rates unchanged at 6.50% and 3.50%, respectively.
• On Monday, August retail sales and M3 data will be released. Later today, Moody’s is expected to cut Poland’s rating outlook to negative.