First data on GDP growth in the third quarter

Hungary and Czechia will publish flash estimates of GDP growth in the third quarter. In Hungary, the likelihood that the economy contracted on a q/q basis is quite substantial, while in Czechia, we believe that private consumption should drive economic expansion in 3Q. For the region, it will be important to see how the Eurozone developed in the third quarter as well (due Wednesday). Further, flash inflation estimates will be published in Croatia, Poland, and Slovenia, as well as in Slovakia within the HICP flash inflation release for the Eurozone. Other than that, we will see the performance of the retail and industry sectors in September in Croatia, Serbia, and Slovenia. Finally, on Friday, manufacturing PMIs for October will be released for Czechia, Hungary, and Romania. Last week's flash Eurozone PMIs showed a slight improvement but remained in contraction territory.

FX market developments

The CEE currencies weakened over the course of the week against the euro, with the Polish zloty and the Hungarian forint losing the most (around 1%). The EURHUF touched 404, while the EURPLN reached as high as 4.35 on Friday. The Czech koruna outperformed its peers, and the losses were not as extensive as those of the Polish zloty and the Hungarian forint. We see global factors behind such development, particularly changes in the outlook regarding monetary easing in the US. Nevertheless, the weakness of the currency was a key factor behind the Hungarian central bank's decision to keep interest rates stable at the October meeting. Although some central bankers suggest the pause in monetary easing may last beyond October, we still see space for another 25bp cut by the end of the year. With regard to the monetary policy outlook in other CEE countries, Czech board members see space for cautious monetary easing. In Poland, weak economic data for September has not changed the stance that monetary easing is most likely to begin in 2025. In Romania, board members have made it clear that stability of rates until the end of the year is the most likely scenario.

Bond market developments

The long end of the curve went up in most CEE countries in response to the change in outlook for US Federal Reserve monetary policy decisions. In Poland and Hungary, 10-year yields increased by as much as 20bp. In this regard, Romania outperformed its peers as long-term yields increased only marginally over last week. Romania has been tapping the international bond market with private placements amid discussions on how fiscal consolidation will look after the parliamentary elections.

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