Romania’s new government has pledged to make deep cuts in the budget deficit by RON 30 billion in 2017. They are laser focused on doing better on the fiscal stability front. This effort couldn’t be more timely or more important, as oil prices remain at around USD 70 per barrel. Second, it’ll suppress headline inflation through the end of this year. Taking a step back to examine the broader Central and Eastern Europe (CEE) region, one finds a mixed economic picture. Currency value fluctuations, as well as inflationary pressures, are showing the results of continued geopolitical conflict and market activity.
Romania has only recently set out its budgetary targets. That’s huge, especially as regional economies continue to react to rising/dropping oil prices and emerging new market forces. The government’s strategy aims to improve economic resilience in the face of these shocks.
Economic Indicators in Poland and Hungary
Poland is out with retail sales growth figures for May, due 10 AM CET. This new data will shed light on where consumer spending trends in the country are heading. May marked an explosive output of industry for Poland with an annual growth of 3.9%. This extraordinary growth is a testament to the strength of the manufacturing sector. Wages and employment are two analytics that analysts will be keeping a close eye on, as they could shape the future of economic policy.
Over in Eastern Europe, the Hungarian central bank is expected to keep its policy rate on hold when it announces its decision Wednesday. It’s not just the threat of recession that’s changed interest rates — which are otherwise fairly stable, a sign of confidence in today’s economy. Global pressures led to some depreciation of CEE currencies vs. the euro this week. Long-term yields throughout the region have been falling since the start of the week. While this trend is positive news, it represents a continued cautious tone in the market.
Global Influences and Geopolitical Context
The regional data isn’t the only thing that makes the economic landscape unique in this part of the world. External factors have a major impact. Jerome Powell’s recent testimony to Congress has investors on the edge of their seats. His insights have the potential to shape market advancements both in the United States and Europe. Adding to this, persistent geopolitical conflicts — particularly the Russia-Ukraine war — have introduced further uncertainty into the markets, affecting investment choices and currency valuations.
In a recent development, President Donald Trump announced a ceasefire agreement between Israel and Iran, which could potentially ease some geopolitical pressures affecting global oil prices. Brent crude oil prices had dropped under USD 70 per barrel by the close of trading on Monday. This significant decrease underscores the volatility that still upends economic predictions even after all the good news.
Inflationary Pressures and Wage Growth
Today in the strange world of inflation reportage, we get the headline that producer prices in [COUNTRY] fell -1.5% yoy. This sharp drop is good news for consumers and businesses, but it is unclear what this means about the state of the economy. And indeed, wage growth in their arch-rival down under has recently cooled back down to 8.4% YoY. We view this increase as a harbinger of negative trends ahead for consumer spending power.
As Romania aims to make deep budgetary cuts, the balancing act between Romania’s own fiscal policy and their external environment is especially important. Further retail sales data from Poland are likely to shake up the region’s economic picture. Moreover, Hungary’s central bank is due to announce its interest rate decision soon, providing another potential source of influence.