CEE Economic Update: Mixed Q4 Results Reflect Disappointing Year

CEE: Fourth quarter shows improvement but still last year was disappointing

Fourth quarter GDP numbers across the CEE region are being released this morning. In Romania, economic growth accelerated from 1.1% to 2.9% YoY. In Hungary, the numbers are also out and improved from -0.4% to 0.0% YoY, below market expectations. In Poland, figures will be released later, but we expect some acceleration here too from 0.5% to 1.0% YoY. This will complete the picture for the CEE region for the fourth quarter and the whole of last year – which was rather disappointing. The Czech Republic numbers were reported earlier with an improvement from -0.8% to -0.2% YoY, clearly the weakest economy in the region. For this year, we expect a strong recovery across the region of around 3%, with the exception of the Czech Republic where we expect just over 1%. Also released this morning was January inflation in Romania, which showed a rise in inflation from 6.6% to 7.4% YoY, highlighting the difference between the rest of the CEE region with lower headline inflation. This was also seen by the central bank, which left rates unchanged yesterday – catch up our latest NBR review in more detail.

Yesterday's US CPI data was clearly negative news for FX in the CEE region, and we have seen significant weakness across the board as a result. PLN is showing the biggest losses, postponing our hopes of reaching the 4.30 EUR/PLN that we mentioned yesterday. The currency pair followed a spike in core rates, and PLN rates have had trouble catching up given the already elevated levels. The main driver today will be the reverberations in the core rates market. However, we believe that EUR/PLN will not go much higher from current levels and instead, the market will take advantage of weaker PLN levels to enter here.