Three more countries from CEE under EDP

Erste Bank Research Team Erste Bank

On the radar

Today, Poland will publish retail sale growth for May.
Tomorrow, unemployment rate in Poland and wage growth in Serbia will be released.

Economic developments

Last week, the European Commission released its assessment of compliance with the deficit criterion for twelve Member States, including five from CEE. The review was initiated due to their fiscal balances exceeding 3% of GDP in 2023 or 2024. Poland, Hungary, and Slovakia are projected to breach the rule in both years. In contrast, Czechia is expected to lower its deficit to 2.4% of GDP by 2024, and Slovenia is set to exceed the threshold only this year. When assessing a country, several "relevant factors" are considered, which may help avoid the excessive deficit procedure (EDP). Czechia escaped the EDP due to its debt being under 60%, a promising fiscal outlook for the current year, and consolidation measures amounting to 1.5% of GDP. Slovenia also evaded the EDP, with its deficit forecasted to drop below 3% in 2025 and further to 1.9% of GDP by 2027. However, Poland, Slovakia, and Hungary have been proposed to enter the procedure. Debt sustainability analysis in these countries indicates significant medium-term risks. Defense spending, a "relevant factor," did not aid Poland, and the consolidation efforts in these nations were deemed insufficient by the European Commission. Romania is already under the EDP since 2020.

Market developments

CEE currencies opened on the weaker side this morning, with EURCZK approaching 25 and EURHUF trading around 397. One factor contributing to the weaker koruna is this week’s Czech MPC meeting, as CNB’s top officials are expected to lower interest rates and have not ruled out a 50bp rate cut. Another factor weighing on CEE currencies is the aftermath of the EU parliamentary elections, particularly the first round of the French parliamentary elections taking place this weekend and the reshuffles among political groups, which increase uncertainty about the future EU leadership.

Download The Full CEE Macro Daily

Author

Erste Bank Research Team

Erste Bank

At Erste Group we greatly value transparency. Our Investor Relations team strives to provide comprehensive information with frequent updates to ensure that the details on these pages are always current.

EUR/USD hits two-day highs near 1.1820

EUR/USD picks up pace and reaches two-day tops around 1.1820 at the end of the week. The pair’s move higher comes on the back of renewed weakness in the US Dollar amid growing talk that the Fed could deliver an interest rate cut as early as March. On the docket, the flash US Consumer Sentiment improves to 57.3 in February.

GBP/USD reclaims 1.3600 and above

GBP/USD reverses two straight days of losses, surpassing the key 1.3600 yardstick on Friday. Cable’s rebound comes as the Greenback slips away from two-week highs in response to some profit-taking mood and speculation of Fed rate cuts. In addition, hawkish comments from the BoE’s Pill are also collaborating with the quid’s improvement.

Gold climbs further, focus is back to 45,000

Gold regains upside traction and surpasses the $4,900 mark per troy ounce at the end of the week, shifting its attention to the critical $5,000 region. The move reflects a shift in risk sentiment, driving flows back towards traditional safe haven assets and supporting the yellow metal.

Crypto Today: Bitcoin, Ethereum, XRP rebound amid risk-off, $2.6 billion liquidation wave

Bitcoin edges up above $65,000 at the time of writing on Friday, as dust from the recent macro-triggered sell-off settles. The leading altcoin, Ethereum, hovers above $1,900, but resistance at $2,000 caps the upside. Meanwhile, Ripple has recorded the largest intraday jump among the three assets, up over 10% to $1.35.

Three scenarios for Japanese Yen ahead of snap election

The latest polls point to a dominant win for the ruling bloc at the upcoming Japanese snap election. The larger Sanae Takaichi’s mandate, the more investors fear faster implementation of tax cuts and spending plans.

XRP rally extends as modest ETF inflows support recovery

Ripple is accelerating its recovery, trading above $1.36 at the time of writing on Friday, as investors adjust their positions following a turbulent week in the broader crypto market. The remittance token is up over 21% from its intraday low of $1.12.