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2019/08/12 / Erste Group Research

CEE Market Insights

The moment of truth could come this week, as 2Q19 GDP releases could indicate how much the German manufacturing slowdown plagued CEE growth. This could easily have implications for regional currencies and rates, too. Last week’s positive performance of the HUF (vs. the CZK and PLN) could likely be due to the fact that investors believe that monetary policy could become more dovish in the latter two countries, while the MNB in Hungary was already the most dovish among its peers. The CZK and PLN could remain weak in the absence of reassuring news regarding global trade disputes, while the HUF is also unlikely to appreciate further in this case.

Yield spreads largely continued to decrease in CEE. Investors can increasingly imagine monetary easing in the region, and while hefty domestic demand and wage growth put upward pressure on inflationary developments, the Hungarian release last week, which indicated lower core price developments, could mean that CEE need not face a blow-up in inflation. As for our forecasts, we took our CZGB yield outlook under revision – we are unlikely to see any pronounced yield increases in the Czech Republic anytime soon.

Week Ahead: Did the CEE region remain resilient to the gloomier external environment in 2Q19? This week, flash GDP releases will provide us with the first answers to that question. We expect the growth momentum to remain strong and arrive at 4.6% y/y in Hungary, Poland and Romania, while in the Czech Republic we expect it to be 2.6% y/y. Domestic demand should remain the main growth driver and should compensate for lower external demand. Moreover, the July inflation reading will be published across the region and we see a mixed pattern among the countries. On the one hand, in the Czech Republic, Romania and Slovakia, price pressure is expected to accelerate. On the other hand, headline inflation in Croatia is to remain stable below 1%, while in Serbia it is to marginally decelerate. The Romanian MinFin published the budget rectification plan that should be approved by the government this week. Given the introduction of new excise taxes and increases of already existing ones, we put our inflation forecast under revision. Inflation could be a maximum 0.5pp higher at yearend than our current forecast. Lastly, industrial production data for June will be released in Romania and we expect it to remain in negative territory for the third month in a row due to weak external demand.

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General information

AuthorErste Group Research
Product nameCEE Insights
Topic in focusFX, Macro/ Fixed income
Economy in focusCroatia, Czech Republic, Hungary, Poland, Romania, Serbia, Slovakia, Slovenia
Currency in focusCroatian Kuna, Czech Koruna, Euro, Hungarian Forint, Polish Zloty, Romanian Leu, Serbian dinar
Sector in focus-
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