Key events in EMEA next week

Next week’s calendar will prove to be a busy one for Hungary. We end May with a central bank rate-setting meeting, where we expect the National Bank of Hungary to 'walk the talk' regarding its shift from aggressive tightening to a more gradual approach. This could translate into a 60bp rate hike in the base rate, instead of the previous steps of +100bp. What could be much more interesting is the decision regarding the 1-week deposit rate on Thursday. Our base case scenario calls for a 30bp hike to 6.75%, the same as in previous months. However, should the market be disappointed by Tuesday’s base rate decision, triggering a further sell-off in HUF markets, we could imagine a situation where the NBH decides to match the size of the effective rate hike (1-week deposit rate hike) with the base rate hike earlier in the week (so hike 60bp instead of 30bp). On the first day of June, we will see the details behind the strong 1Q GDP growth and we expect the main driver to be consumption. Manufacturing PMI will remain in expansion territory, though we are not sure this will translate into strong industrial production data. Before we learn about the performance of industry, we will see the first hard data for April on Friday, as the Statistical Office will release retail sales turnover. We expect a slowdown as one-off impacts boosting non-food and fuel sales are fading.

In May, we expect annual inflation to increase further to 75.0% (3.9% on a monthly basis) from 70.0% a month ago, given the broad-based deterioration in price dynamics, with a largely supportive policy framework, and the Russia-Ukraine war putting pressure on import prices. On the national accounts, 1Q22 growth will likely be strong at 6.0%. However, there have been signs of a deceleration in economic activity lately, also impacted by geopolitical factors. This backdrop leads us to look for a marked slowdown this year to below 3% with risks tilted to the downside.