Heterogenous performance of CEE since the start of the war

On the radar

• Fitch affirmed Romania’s rating at BBB- and kept negative outlook.

• Average real wage growth in Slovenia increased by 2.0% y/y in December.

• Today, January’s retail sales growth will be released in Poland at 10 AM CET.

• Unemployment rate will be published in Slovenia at 10.30 AM CET

• At 11 AM CET final inflation in Croatia will be released.

Economic developments

There are many economic releases scheduled throughout the week. Among the most important are central bank meeting in Hungary and 4Q24 GDP growth and structure in several countries. Today, we look at the economic expansion of the region since the outbreak of the war in Ukraine as exactly three years ago Russia invaded Ukraine. Although the economic performance of CEE countries is quite heterogenous (Croatia gained as much as 12%, while cumulative growth in Hungary since 4Q21 reached only 0.4%), the average growth of the region outpaced the growth of the whole EU and the Eurozone. Since the outbreak of the war, the region expanded by 5.1% on average, which is almost twice as much as the Eurozone. However, according to a different estimate by the Kiel Institute, GDP would have been higher if it had not been for the war. The biggest economic shock was, however, unprecedented inflation increases. The price level has shifted visibly up as inflation was double digit in the years following the war.

Market developments

Fitch affirmed Romania’s outlook at BBB- and kept the outlook negative. The negative outlook reflects the combination of significant deterioration of public finances and a marked growth slowdown in 2024 as well as the likely adverse effect of heightened political uncertainty on fiscal consolidation prospects. We believe that fiscal path after presidential election and broadly speaking achieving political stability will be crucial for Romania to avoid downgrade. Poland’s President Duda met shortly with President Trump. Duda said that there is little concern that the US presence in Poland will decrease. In Hungary, Fidesz party is expected to nominate Mager to become the central banker following Pleschinger whose term ends next month. As for other global news, in Germany, the conservative sister parties CDU/CSU won the Bundestag elections on Sunday. They were followed by the right-wing populist AfD (almost 20% votes), the SPD and the Greens. Over last week CEE currencies have been holding strong while the long end of the curve shifted up.

Download The Full CEE Macro Daily