Poland has countered with a deluge of impressive economic data today, showing strong industrial output growth, negative producer prices (indicating some deflation), and accelerating employment and wage growth. Released from 10 AM CET, this release is sure to offer important clues regarding the evolving economic health of the country and the euro area. Currency movements are making all the headlines this week. If the Czech koruna is moving in the wrong direction, it would be appreciated against the euro.
The Czech central bank is meeting today for a rate-setting meeting. Analysts don’t expect any movement on interest rates at this meeting. This pause is telling of the recent status quo in Czech monetary policy. The Federal Reserve The Fed is firmly in data-dependent mode.
Cost of labor in Central and Eastern European countries has experienced mixed increases. In both Croatia and Hungary, labor costs are up about 9% YOY. Leading the region is Serbia with a staggering growth of 11.7% in costs associated with labor. By contrast, annual increases in Poland’s labor costs have been much more modest— 6-8% annual increases. In like manner, Czechia, Slovakia and Romania announce the same national growth rates in labor costs, staying in line with this quartet of countries.
Ludwik Kotecki, central banker in Poland, offered this wisdom just recently. He thinks the current pause in interest rate cuts will be “likely held” until March or April 2026. He left the door open for one or two more interest rate cuts after that. This outlook characterizes a wait-and-see attitude toward monetary policy as the bank takes stock of inflation and ongoing economic recovery.
More generally, the European Central Bank (ECB) is likely to hold all their key interest rates in a currently stable pattern at their monetary policy meeting today. This decision comes on the heels of several other recent moves designed to help stabilize the eurozone economy in the face of wildly shifting inflation rates.
Countries in Central and Eastern Europe are rapidly deflating their currencies while dealing with the external shock of rising labor costs. Yet, they’re figuring this out, the landscape is changing economically. How the interconnectedness of these factors feeds into the workings of monetary policy and economic strategy in the region should be one of the animating questions of our time.