Dynamic start of the year: Inflation, retail and industry data and central bank meeting in Serbia

The beginning of the week is filled with data releases across the region. Let’s begin with flash estimates of December’s inflation. In Poland, the inflation rate at the end of the year was lower than expected. On Tuesday, Croatia will release its December inflation figure. Several CEE countries (Czechia, Hungary, Slovakia and Romania) have retail sales and industrial output growth for November scheduled. In Slovakia, trade data will also be released, and we expect to see a negative trade balance for the first time in quite a long time. Finally, in Serbia, the central bank will hold a rate setting meeting and we expect the central bank to remain on hold. As for other news, Croatia will hold a second round of presidential elections on January 12. Incumbent President Milanovic narrowly missed victory in the first round. Romania announced the first steps of fiscal consolidation with measures coming into force as of January 1. Czechia will begin publishing flash inflation estimates as of February (shortly ahead of the central bank meeting). We marginally adjusted our 2025 growth forecast for Czechia to 2.2% (down from 2.3%).

FX market developments

During the holiday period, the FX market was relatively stable. At the beginning of 2025, however, volatility increased. In Hungary, we have seen weakening of the forint, as the EURHUF moved more visibly up to 415. We associate the changes on the FX market with global factors mostly, alongside strengthening of the US dollar. The Polish zloty and Czech koruna were not affected as much. In fact, the Czech koruna slightly strengthened against the euro, while the Polish zloty weakened only marginally compared to the Hungarian forint, which lost more than one percent against the euro at the end of the last week. This week, the central bank in Serbia is to hold a rate setting meeting; we expect no change in the key policy rate, which is at 5.75% at present. The Serbian central bank is likely to condition its moves on the ECB and Fed monetary policy directions.

Bond market developments

The bond market has been quite stable over the last week. The most important news came from Romania, which announced the first steps of its fiscal consolidation. The measures undertaken took effect as of January 1, 2025. Local media reported that the budget deficit will likely reach 8.4% of GDP in 2024 (Eurostat methodology), according to preliminary data, above the target of 7.9% agreed with the European Commission. In other words, a larger adjustment will be needed to reach a deficit of 7.0% of GDP in 2025. It remains to be seen whether the announced measures will be sufficient to reduce the budget gap by 1.5% of GDP in the course of the year or if additional fiscal measures will need to be implemented. In Hungary, the budget deficit in the three quarters of the year reached 3.5% of GDP.

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