CE3 countries: improved economic sentiment and new opposition leader

Poland: central bank continues to wait, economic growth wanes slightly

As had been generally expected, the central bank left the key rate unchanged at 5.75%. Central bank governor Glapinski stood by his comments which did not indicate any interest rate cuts for this year. Based on the preliminary estimates, seasonally adjusted GDP growth appears to have weakened somewhat (plus 1.3%) versus Q4 2023 (plus 1.6%).

In the recent EU parliamentary elections, the governing party headed by Donald Tusk was mostly able to confirm its victory in Poland’s general elections, outperforming PiS to become the strongest party. PiS lost 5 seats. However, these did not go to the governing parties, as they were taken by the right-nationalist to extreme right party Konfederacja. Voter turnout was quite modest, at 40%, down 5% compared to 2019. Ultimately, the election results reflect a deeply divided political landscape in Poland, where PM Tusk has only made relatively slow progress with his various political initiatives. The equity market in Warsaw rose slightly in May, advancing by around 0.4%.

Czechia: economic sentiment improving

During the first quarter of this year, the Czech economy probably grew slightly more strongly than generally anticipated and was well higher than the central bank’s forecast, with an increase of around 0.4% versus Q1 2023. At the same time, inflation surged in April, from 2% to 2.9%. This notwithstanding, the central bank trimmed the key rate from 5.75% to 5.25% in early May, in a move that was widely expected. In the meantime, there are clearly quite heated discussions within the governing coalition about introducing a new tax on banks, in order to boost public revenues. So far, the strongest coalition partner has rejected the idea. The equity index in Prague saw little change on balance in May, posting a minimal gain.

Hungary: new opposition leader

As anticipated, in May the Hungarian central bank cut its key rate by a further 50 basis points to 7.25%. The central bank’s deputy governor mentioned the possibility of another rate cut, but only saw limited options for additional rate cuts beyond that. One reason for this was inflation, which may pick up slightly again in the coming months, as base effects begin to fade. Corporate sector surveys in Hungary recently reflected a modest uptick in economic activity.

In the European parliamentary elections, the new party TISZA (Respect and Freedom), which was only founded in March and is headed by former Fidesz insider Peter Magyar, was immediately able to garner about 30% of the votes. On the other side of the coin, PM Orbán’s Fidesz party achieved its worst EU election result ever so far, coming in at just under 50% together with its allies. However, TISZA won the majority of its new seats in parliament from the other opposition parties. It remains to be seen how durable the success of the new opposition leader in Hungary will be and how long he can maintain his political momentum. In the local elections held at the same time as the EU elections, Fidesz mostly did quite well. It appears that support for Orbán among his voter base is quite stable, which is hardly a given after 14 years in office.

All in all, the Hungarian equity market hardly budged in May, posting a tiny gain of about 0.3%.