CEE: Economic sentiment improved in March

On the radar

• S&P affirmed Czechia’s rating AA- with stable outlook.

• Unemployment rate in Hungary increased marginally to 4.5% in March.

• Retail sales growth in Slovenia grew 4.3% y/y in February.

• Retail trade expanded by 2.6% y/y in Croatia in February.

• Today, at 8.30 AM CET Producer prices will be published in Hungary alongside the wage growth.

• At 10 and 10.30 AM CET, Poland and Slovenia will publish flash estimate of March inflation.

• At 11 AM CET Croatia releases industrial output growth in February.

• At noon CET Serbia publishes industrial output growth and retail sales in February as well as trade balance.

Economic developments

Economic Sentiment Indicator increased in March in all CEE countries but Croatia and Serbia. We believe that recent announcements about fiscal stimulus in Europe (Germany passing EUR 500 billion fund and triggering of escape clause for defense spending) as well as ongoing talks regarding ceasefire between Ukraine and Russia helped to lift the mood. In Serbia political tensions could affect the sentiment as protests continue. Looking from a broader perspective, the Economic Sentiment Indicator dropped in 1Q25 compared to the 4Q24 and the whole 2024. The uncertainty regarding tariffs and recent geopolitical developments keeps weighing on the economic outlook. All in all, the beginning of the year has been rather weak. We do hope, however, that the upward trend that began in last two months will continue.

Market developments

S&P affirmed Czechia’s rating AA- with stable outlook. Throughout the week, we have seen divergence on the regional FX market. While the Czech koruna and Polish zloty strengthened against the euro, the Hungarian forint weakened by more than 1%. We see local factors behind such development, in that a higher EURHUF level is a response to changes in regulations of minimum holdings for domestic funds as well as the hawkish tone of the central bank after the interest rate decision. The unveiling of 25% US tariffs on imported cars has led to divergent yield developments in global markets. While yields on US Treasuries surged due to concerns about potential inflation impacts, yields in the euro area and CEE edged down. This week, Polish central bank is expected to hold the key interest rate unchanged on Wednesday’s meeting. At the end of the week, Serbia and Slovenia will be reviewed by S&P and Fitch, respectively. In Serbia we do not rule out possibility of the outlook change to negative from stable.

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