GDP in Croatia, flash inflation estimates

This week's economic releases indicate a mix of unemployment rates, GDP breakdowns, retail sales, and price index changes. On Monday, Poland anticipates a slight decrease in its unemployment rate to 5.14% from the previous 5.3%. The day after, Slovakia will release the PPI for April and Slovenia's retail sales are projected to show a mild recovery with a 1% growth after a 0.4% decline. The last release for Tuesday is Croatia's GDP for the first quarter, which is estimated to grow by 4.2%, supported by strong construction and consumption. On Wednesday we will know retail sales in Croatia, while Thursday will see only release on unemployment figures in Romania. Friday will be the busiest day of the whole week. Czech GDP breakdown for the first quarter is expected to show stronger household consumption, confirming quarterly and yearly growth rate of 0.5% and 0.4%, respectively. Inflation rate in Poland for May is expected to accelerate from 2.4% y/y in April to 2.8% y/y (market consensus), and Slovenia's CPI is projected to edge down to 2.8% from 3%. Croatia's industrial production is expected to continue its volatile pattern, with a forecasted 2.5% year-on-year decrease for April. Serbia's industrial production is anticipated to slightly accelerate, and its GDP for the first quarter is expected to be confirmed at a 4.6% growth rate year-on-year.

FX market developments

The Hungarian central bank cutting the key rate by another 50bp to 7.25% was a key event last week. Monetary easing is coming to an end in Hungary, however, and we believe we will see the key interest rate going lower by another 50bp at most at the end of June. Moody’s is scheduled to review the rating and outlook for Hungary on Friday after the market closes. We do not expect any material change. As for FX market development, the Czech koruna was relatively stable. The EURHUF moved down to 385 and the EURPLN to 4.26. This week, there are no local releases that could impact the FX market. We expect global factors to drive market development, especially as there are inflation releases scheduled on the core markets.

Bond market developments

Last week, Romania tapped international markets with the sale of euro-denominated bonds. This year, Romania has already issued more than the indicative target in the amount of EUR 8.5-9.5bn for foreign currency issuance. Further issuance will depend on budget execution. On the local currency market, demand at last week’s auctions was solid. As for yield development, we have seen long-term yields rising in most CEE countries following the yield increase on the core markets. The relatively good flash estimates of the PMI indices for the Eurozone could be one of the factors behind such market movements.

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