Retail sector keeps growing, mixed performance of industry in CEE

On the radar

• The ECB Governing Council decided to cut the deposit rate by a further 25 basis points (bp) to 3.0%.

• Serbian central bank left the key policy rate unchanged at 5.75%.

• Inflation rate in Serbia eased to 4.3% y/y in November.

• In Romania industrial output

• In Slovakia, inflation rate in November increased marginally to 3.2% y/y.

• Later today, Poland will release final inflation number for November as well as trade data.

• Current account position will be published in Czechia and Romania.

Economic developments

The year-to-date performance of the retail and industry sectors vary. In general, retail sector have recovered visibly. In 2023, in most of the CEE countries the retail sector contracted, while in 2024 the year-to-date performance is in black with average retail sales growth ranging from 2.8% y/y in Poland to as much as 8% y/y in Romania. Increase in purchasing power of households support higher level of spending. Industrial output growth, on the other hand, declined in year-to-date terms in Czechia, Croatia, Hungary and Romania. The biggest contraction of the industry sector took place in Hungary. On the other hand, Poland, Slovakia and Serbia saw the industrial output growing this year.

Market developments

The ECB Governing Council decided to cut the deposit rate by a further 25 basis points (bp) to 3.0%. The decisive factors were the inflation outlook, the dynamics of underlying inflation and the transmission of monetary policy. In the region, the central bank in Serbia met our expectations at year-end by keeping its key rate unchanged at 5.75% in December due to still relatively high inflation, visible core inflation pressures, and heightened emerging market outflows at year-end. It seems likely that NBS will remain cautious in January as well, opting to wait and see. We expect a total of 100bp cuts in 2025, although risks are tilted towards less rather than more cuts. On the FX market, the Czech koruna and the Hungarian forint have strengthened against the euro this week, while the Polish zloty has depreciated slightly with EURPLN at 4.27. On the bond market, we see mixed performance with Hungarian and Romanian long-term yields declining the most this week.

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