Romania remains under pressure from the European Commission to show a credible fiscal consolidation plan. Although that window of opportunity is closing quickly. With all three major rating agencies having recently placed Romania on a negative outlook, the stakes are high. The next round of reviews for Romania will take place August through October. This deadline adds additional urgency to an already compelling scenario.
Regional currencies have remained less vulnerable. The Hungarian forint and Polish zloty have gained against the euro, supported by the recent weakening of the US dollar. This policy change has strongly supported Central and Eastern European (CEE) government bonds. They have boomed on the back of the drop in 10-year Treasury yields and the weaker USD.
Romania’s Fiscal Pressures
Romania’s economic landscape today is a treacherous minefield. The need for a realistic fiscal consolidation plan is most urgent. The negative watch from three major rating agencies should not be taken lightly. Without re-establishment of this fundamental principle of investor confidence, Romania’s borrowing costs may be increased and the country’s hard-won fiscal stability undermined.
And that’s why this timeline is so important. These reviews scheduled between August and October are expected to politically determine the new direction of Romania’s economic policies for years to come. The outlook on this is negative, meaning the government needs to take strong, immediate steps to shore up its fiscal position. This is how to begin restoring confidence among investors and rating agencies.
You can expect these to arrive in your inbox later this week. Unemployment and producer prices will provide more detail in how China is doing economically. Analysts have one eye on these numbers to assess Romania’s advances, and the likely reactions of Romania’s policymakers.
Regional Currency Strength
In an unexpected development, the Hungarian forint has in fact recently strengthened against the euro. Even the Polish zloty is up, underscoring the upsurge that’s sweeping across the region. Both currencies rose roughly 0.5% thanks to a dollar drop against the euro. This change has provided a boon to CEE economies.
This currency appreciation is welcome news, especially since it may be playing a role in reducing inflationary pressures in these countries. CEE government bonds have mostly seen positive movements. This overall positive trend can be attributed to the strength of the dollar and a drop in 10-year Treasury yields last week.
Those of us who study economic development will want to see how the dogfight between these two cities affects their local economies. They are specifically interested in revealing inflation dynamics among CEE countries. Inflation forecast Analysts assume inflation returns to the Fed’s target over the course of the projection. This decrease would make the already-strong economic anchor of the region that much more stable.
Upcoming Economic Releases
Several important economic indicators are set to be released this week that will shed light on the performance of various CEE economies. Hungary will publish its industrial production data for May at the end of this week, providing insights into its manufacturing sector’s recovery post-pandemic.
Romania will be revealing unemployment and producer price index mid-week. That information will be key for knowing what’s driving the dynamics of its competitive labor market. Ahead of this, on Wednesday, Poland’s central bank will have a rate-setting meeting. First, they are widely predicted to hold the policy rate at 5.25%, signaling their resolve to stay the course with the present monetary policy amid growing global uncertainty.
On Monday, Croatia and Serbia will announce their May retail sales growth and industrial production growth numbers. Besides this, Serbia will come out with its trade balance for the month. We expect these releases to have a sizeable impact, as we’ll get a much clearer look at consumer behavior and overall economic activity in both countries.