Key events in EMEA next week

The war in Ukraine will have a significant impact on the Polish economy, primarily via international trade, subtracting some 1.3pp from 2022 GDP. However this is unlikely to deter the National Bank of Poland (NBP) from hikes, given the conflict will also result in even higher inflation, stemming from commodity prices and a weak Polish zloty (PLN).

That means the central bank is set to continue its tightening cycle in March, most likely with another 50bp rate hike. A less aggressive move would very likely affect the zloty, undermining NBP FX interventions. In fact, policymakers could employ mildly hawkish language to support the FX interventions already taken.

Looking ahead, and as a result of a slightly weaker growth outlook, even with persistently higher CPI, we no longer feel there's upside risk to our 4.5% forecast for the NBP's terminal rate. Getting there could also take longer.

February's monthly budget deficit could be close to HUF 1.5 trillion due to several one-off transfers to families (tax refund), pensioners (13th-month pension) and armed forces (salary bonus) among others. On top of that, we believe that the humanitarian aid to help refugees from Ukraine will unexpectedly also factor in. But a way bigger question mark is related to the February inflation data.

We’ve seen upside surprises all across Europe, so we don’t expect a drop in the year-on-year headline reading despite the inflation shield measures that are in place, affecting utility costs, fuel prices and some basic foods. The central bank has already signalled that annual inflation could move above 8%, so we can say that our forecast is rather conservative.