Key events in EMEA next week

The Hungarian Central Statistical Office will publish the latest data on economic activity next week. We expect a slight improvement in momentum based on the monthly performance of the retail and industrial sectors. The World Athletics Championships in Budapest could temporarily boost retail sales with a significant influx of tourists. Based on some survey indicators and the track record of industrial production during the summer in recent years, we see some improvement in the export sectors and, this time, perhaps also some temporary support from the sectors driven by domestic demand. We don't think that this improvement will be sustainable but after four quarters of technical recession, any small positive change that can bring the recessionary period to an end is to be welcomed.

Given the deterioration in pricing behaviour, currency weakness, widespread increase in wages and tax adjustments and markedly negative ex-post and ex-ante real policy rate, inflation will likely remain under pressure in the near term. Accordingly, we expect annual inflation to increase further to 61.5% in September (with a 4.7% month-on-month reading) from 58.9% a month ago.

With CPI inflation falling sharply in September, the National Bank of Poland is expected to continue its monetary easing cycle in October. However, the size of the cut should be smaller than in September in order to avoid further depreciation of the zloty. The FX market reaction to September's 75bp rate cut most likely surprised the MPC and may make further disinflation more difficult. We expect a 25bp rate cut at the policy meeting on Wednesday and the main NBP rate to decline to 5.50% by the end of 2023, from the current 6.00%.