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2019/10/28 / Erste Group Research

Waiting for confidence vote in Romania

This week, there are two dimensions of events happening in CEE: a political one in Romania and an economic one in other countries. In Romania, the confidence vote for the new, liberal government led by Orban will be held either this week or at the beginning of November. The campaign for votes continues to make the situation volatile. Even if the government is approved, the road to reforms will be full of hurdles. As far as economic news is concerned, we get to see October inflation figures for Poland and Slovenia. Both countries should see easing inflation rates in annual terms. Further, retail sales growth should maintain its positive trend in Croatia and Serbia. While consumption remains strong, the business environment in CEE is less optimistic. Industry is likely to remain in the red in Croatia, while in Serbia, a mild recovery is expected.

Regional currencies mostly advanced further last week, despite the US dollar appreciation. Prospects that a hard Brexit could be avoided likely helped this. We see the potential for further appreciation of the Polish zloty and the HUF as low, while the Czech koruna may benefit from the interest rate differential. The zloty had its longest winning streak since 2008 earlier this month, which could reverse, while a strong forint is unlikely to be favored by the ultra-dovish MNB in Hungary.

Czech, Hungarian and Polish 10Y LCY spreads all narrowed over German Bunds last week (by 2-8bp). The Romanian 10Y yield increased, but the auction to sell 10Y RON bonds attracted enough demand, indicating that buying interest is returning to the market after some issues with auctions in the third quarter. Slovakia also saw successful auctions earlier last week, attracting very strong demand, while Hungary also sold more bonds than planned in 3Y, 5Y and 10Y paper. Any possibility for mild yield increases in CEE is conditional on an improving external economic outlook and a subsequent upward move in Bund yields.

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General information

AuthorErste Group Research
Product nameCEE Insights
Topic in focusFX, Macro/ Fixed income
Economy in focusCEE, Croatia, Czech Republic, Hungary, Poland, Romania, Serbia, Slovakia, Slovenia
Currency in focusCroatian Kuna, Czech Koruna, Euro, Hungarian Forint, Polish Zloty, Romanian Leu, Serbian dinar
Sector in focus-


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