This week, a positive tone has emerged in the financial markets as investors digest the implications of "Trump 2.0." Amidst this backdrop, the Central and Eastern European (CEE) region faces its own fiscal challenges. Hungary and Slovakia are grappling with general government deficits nearing 5% of GDP on a four-quarter rolling basis. Meanwhile, Slovenia and Croatia maintain the strongest fiscal positions in the region. As these countries navigate economic uncertainties, the broader market experiences fluctuations, with the GBP/USD trading under pressure at 1.2300 during European hours on Thursday.
Poland has chosen to prioritize heightened military spending and loans from the Recovery and Resilience Facility (RRF), postponing fiscal consolidation efforts until 2026. By 2025, the country expects to increase revenues through excise taxes and non-indexed tax allowances. However, Poland, along with Romania, reports some of the highest budget deficits in the CEE, reaching nearly 6% and 8% of GDP respectively by the end of the third quarter of 2024.
In currency markets, EUR/USD trades listlessly around 1.0400, while CEE currencies show resilience against the euro. Gold prices remain subdued during the European session on Thursday, reflecting ongoing market volatility. The finance ministry's recent action of borrowing CZK 1 billion through a floating rate note indicates active fiscal management amidst these challenges.
Czech central banker Jan Prochazka anticipates a supportive stance for a 25 basis points rate cut at the upcoming central bank meeting on February 6. This comes as long-term yields exhibit a declining trend throughout the week. Additionally, December's headline inflation figures came in weaker than expected, further influencing monetary policy considerations.