After the shock in 2022 that followed the outbreak of the war in Ukraine, consumer confidence dived. A broad-based recovery followed through 2023 to mid-2024. Since then, a rather fragile trend has been observed. Most recently, we have seen a sharp decline in consumer confidence across the region in response to the war in Iran, elevated commodity prices, and rising fears of inflation. There are two countries worth mentioning in particular: Romania and Hungary. In Romania, consumer confidence remains strongly subdued following fiscal consolidation. On the other hand, Hungary is the only country where consumer confidence has increased despite the global headwinds. This most likely reflects post-election optimism and hopes for economic recovery after a couple of years of stagnation. In general, however, the decline in consumer confidence is likely to weigh on private consumption growth in the quarters to come. Private consumption has been a pillar of growth so far, supported by real wage growth and low unemployment rates. Rising inflation will reduce households’ purchasing power and will likely make consumers more cautious in their spending decisions. We see this as a growth-negative factor.
Market movements
Poland’s central bank kept the key policy rate unchanged at 3.75%. The statement emphasized elevated uncertainty regarding geopolitical developments and their impact on the Polish economy. The Council concluded that a continuation of the wait-and-see approach in monetary policy is optimal under these circumstances. The future rate path will be highly dependent on global energy commodity prices and their transmission to inflation. Today, there are two central bank meetings, in Czechia and Serbia, and we expect rates to remain unchanged in both countries. Hungary’s incoming Prime Minister, Magyar, warned that the budget deficit may be as high as 6.8% of GDP in 2026, as opposed to the initially planned 3.9%, which had already been revised to 5% of GDP. On the FX market, the Romanian leu continues to weaken against the euro, with EUR/RON moving toward 5.26. This represents an additional 1% depreciation on top of the roughly 2% weakening observed in the previous week. At the same time, other CEE currencies have strengthened somewhat since the beginning of the week, with EUR/HUF below 360. This development is driven by global factors, in particular news that the U.S. has presented a one-page memorandum of understanding that could gradually reopen the Strait of Hormuz and lift the American blockade on Iranian ports.