CE3 countries: higher growth, interest rate cuts, and political tensions in the spotlight

Poland: growth outlook up, inflation projections down

The Polish central bank again left its key rate unchanged at 5.75% while raising its growth outlook for 2024–2026. At the same time, it sees a better inflation trend than before. The current inflation rate of 2.8% p.a. is within its target range. But inflation may rise again in the coming quarters because the government is likely to lift (or allow to expire) a large number of measures enacted to limit the price increases. This includes the de facto suspension of value added tax on food and a price cap for energy. Thus, the key rate is still likely to remain the same through to the end of the year.

A look at the economic data shows retail sales rising more rapidly than has been seen since 2022. In parallel to this, private-sector wage costs rose by 12.9%, an increase that has not been seen since a year. The stock market in Warsaw rose slightly in March, by 0.7%.

Czechia: central bank cuts interest rates again

Czechia’s central bank again cut its key rate by 0.50% to its current 5.75%. The accompanying statement was cautious, but was more moderate than in February. The latest economic indicators are signalling that economic activity increased somewhat in the first quarter. Inflation fell further to 2% in February, the central bank’s target and well below the central bank’s inflation projection. The stock index in Prague rose steeply in March, by around 4%.

Hungary: interest rate cut and a new opponent for Orban

Hungary’s central bank again slashed its key rate by 0.75% to 8.25%. The currency gatekeepers anticipate a key rate of between 6.5% and 7% at the end of the year. Hungary’s economic minister expects 2.3% growth for 2024. It will not be possible to reach the target of 4% economic growth p.a. this year due to the temporary weakness of the export markets, but this level is realistic for 2025 and the following years. The goal is to reach 90% of the EU average economic capacity by 2030. Re-industrialisation is a key measure to this end, along with an increase in goods exports. But this does not require an economic course change, rather better fine coordination within the economy.

Orban’s government is being rocked by allegations of corruption and criminal manipulation as part of investigations by the public prosecutor. A former Fidesz member and ex-husband of the justice minister who recently resigned under pressure released a recording that is said to prove the allegations, and quickly gathered thousands of supporters and sent them into action. They are demanding the resignation of Orban and the attorney general. The defendants refute the allegations as baseless, and Prime Minister Orban has showed little irritation to date.

The Hungarian equity market bucked the general trend and retreated by close to 1% in March.