Production expectations remain deeply below pre-pandemic average

On the radar

• Real wage growth in Czechia for 3Q24 was 4.6% y/y, in nominal terms 7% y/y.

• Today, Polish central bank holds a rate setting meeting and we expect no change in policy rate.

• Otherwise, there are no other releases scheduled.

Economic developments

Today, we continue to look at soft indicators. Within the Economic Sentiment Survey companies evaluate their production expectations on a monthly basis. It seems that since the beginning of 2022 productions expectations have declined and remain at a subdued level compared to the pre-pandemic five-year average. Prior to 2020, the average balance of answers was hovering between 15 and 25 for most of the time. After the pandemic, production expectations for months ahead briefly recovered and reached similar levels on the course of 2021. Since the outbreak of the war, however, CEE countries seem to have switched to lower gear. The average balance for the last three years is barely 8.4 in CEE8. Looking ahead, we do not see any trigger in the short run that could restart the production engines in the more meaningful way. Increasing uncertainty and the threat of increase in protectionism are growth negative factors.

Market developments

Today, Polish central bank holds a rate setting meeting and we expect no change in the policy rate. Inflation has been developing in line with expectations. The discussion about monetary easing is getting closer and if inflation declines, we should see rate cuts in the course of the first half of 2025. Czech parliament approved the budget bill slashing the budget gap to CZK 241 billion from CZK 282 billion this year. Czechia will thus continue with fiscal consolidation and brining the budget deficit further down to below 3% of GDP. Slovakia also approved the 2025 budget projecting that gap should be lowered to 4.7% of GDP in 2025 with consolidation package in place. The Hungarian forint continues to weaken against the euro with EURHUF close to 414. On the bond market, long-term yields in Poland and Hungary ticked up since the beginning of the week.

Download The Full CEE Macro Daily