Inflation likely stepped up a gear in April
This week in EEC
This week is full of exciting news. Poland will unveil its flash GDP in 1Q21, which we see at -1.4% y / y. Although tight restrictions affected the retail and service sectors for most of the quarter, the economy likely grew 1.1% on a quarterly basis. Inflation data for April will be finalized across the region, as all countries except Slovenia and Poland, which have already done so, will release their impressions of the CPI. These are expected to show a noticeable increase in annual terms, driven by base effects from last year – reaching 4.8% year-on-year in Hungary. Rising fuel prices, spurred by last year’s weak oil base, are expected to play a significant role in year-over-year inflation rates. In addition, changes in excise duties and, as a result, higher tobacco prices have probably contributed to the intensification of inflationary pressures in Slovakia, Hungary and Romania. Industrial production growth in March could have evolved up to 9% y / y in Slovenia, 15.3% y / y in Romania and 21% y / y in Slovakia, driven by solid external demand (even in the middle some disruption on the supply side) and a solid base effects. Central bank meetings in Romania and Serbia are expected to keep policy rates unchanged at 1.25% and 1%, respectively. The Serbian central bank could leave its rate unchanged throughout 2021. The Romanian central bank is ready to ensure flexibility in its inflation target, which suggests, in our opinion, that it will likely tolerate temporarily higher inflation. linked to the offer.
During the last week of April, the EWC recovery index corrected slightly, although it remains close to recently observed highs. With most restrictions on the retail sector having been lifted in the Central and Eastern European region, mobility to grocery and retail stores has further improved. Mobility to grocery stores has reached new record levels. On the other hand, mobility to the workplace and air pollution deteriorated somewhat at the end of the previous month. In the coming weeks, a slight revision of the recovery index cannot be ruled out, as electricity data has been unavailable since mid-April. The CEEC recovery index suggests the region is heading for a strong recovery in 2Q21, and double-digit GDP growth momentum is increasingly likely.
Evolution of the foreign exchange market
The US dollar depreciated sharply over the weekend and EURUSD rose above 1.21 as labor statistics for April fell below market expectations. CEEC currencies took advantage of the weak dollar and appreciated. The Czech koruna was probably also supported by the central bank’s decision. Although the CNB surprisingly lowered its GDP growth forecast for 2021, the general wording seemed belligerent. Thus, the crown fell below 25.7 against the euro. The Croatian kuna has strengthened slightly, due to tourist influxes. The zloty appreciated strongly after the Supreme Court ruling on CHF lending. The court maintained its earlier view that claims from banks and consumers do not automatically lead to mutual compensation. In the court’s opinion, the bank can demand reimbursement of the service from the moment the loan contract has become definitively ineffective, which conditions the operation of the limitation period.
Evolution of the bond market
The CEEC bond markets remained relatively stable last week; more interesting movements occurred on the short end. CNB’s hawk comments triggered an upward turn (+ 20bp w / w /) in FRA9x12, which landed around 1.15%, well above the policy rate (0.25%). We expect the CNB to achieve the first hike in August and another in November, but we cannot rule out that policy normalization may already begin at the end of June (at the next policy meeting). This week, the National Bank of Poland will hold its first of two QE auctions scheduled for May. In its last operation in April, it bought government securities for PLN 5 billion. In addition, BGK will place at least PLN 1 billion of bonds. Czechia, Hungary, Romania and Slovenia will sell treasury bills this week. In addition to this, a wide variety of bonds will be offered – ROMGB 2028, 2030 and 2036, CZGB 2031, 2032 and 2040, and some HGB and SLOVGB.
In case you missed
EEC: retail sales in March above our expectations in Hungary, Romania and Slovakia.
RS: GDP growth in 1Q21 surprised on the rise. We have revised our GDP forecast for FY21 up 1pp to 6%.
HU: Industry accelerated in March due to the base effect.
CZ: central bank kept the key rate stable at 0.25%. Industrial production for March confirmed the economic recovery.
SK: Exports reached a record figure in March.
PL: National Bank of Poland kept the key rate unchanged at 0.1%.
North Macedonia: Fitch confirmed the rating at âBB +â with negative outlook.