Domestic demand is a CEE strength
Serbia, Slovakia and Romania are the last three countries in the CEE world to release the 3Q19 GDP growth figure and its structure this week. With a complete picture on growth drivers across CEE, we will be closely watching the performance of retail and industry in October. In Hungary, retail sales should maintain solid growth, while industrial output is likely to moderate. In Czechia and Romania, retail sales dynamics are likely to ease, while in Slovakia, the contraction should continue. Slovakia remains a clear outlier in the region, with retail sales in the red. All in all, October’s data set is likely to suggest that the recent slowing trend should continue into the last quarter of this year. On Wednesday, the Polish MPC holds its rate setting meeting, but we do not expect to hear anything new. Amid slowing growth and with the inflation rate under control, the policy rate is likely to remain stable.
CEE currencies went full roller-coaster last week, due to a multitude of domestic news. That being said, as the moves were around our current forecasts, we have not changed our outlook on any of the regional currencies. The zloty was hit after the top court ruled that CHF loans could be converted at the original exchange rate but retaining Libor rates, which is actually not against the previous ECJ ruling. The RON also went down and up after it seemed certain that the original deficit targets would not be respected. The EURHUF also hit an all-time high again, but the forint gained a lot on Friday. We will see how the central bank thinks about this at today’s FX-swap tenders.
Budgetary woes put pressure on Romanian bonds last week while other regional bond yields were little-changed or showed a decline (particularly in Poland and Croatia). Romania announced RON 6bn of issuance for December, which is much higher than the usual average. Current CEE yield levels are not too far from our forecasts. Czech yields may go up a little bit after the British elections. However, for Hungary, given the very strong sales of retail securities, the need to sell bonds on the wholesale market might be lower. We therefore see some downward risks to our yield forecasts for Hungary. Romanian developments are strongly dependent on news about the budget.