WOOD Flash – CEE macro: CE4 yields and macro forecasts update

In this publication, we present our updated projections for the CEE yields and our updated forecast tables for the region. The updated tables reflect our revised forecasts after the Russian invasion of Ukraine – with, most notably, our aggressive assumption of a USD 120/barrel average oil price this year. We see a 2-4% average drop in the real GDP growth performance as plausible this year among the CE4, relative to our pre-war baseline. For inflation, we stand by our earlier guidance of a high risk of double-digit inflation this year, moderating, but staying two-to-three times the central banks’ targets in 2023E. We have also included an alternative scenario for policy rate increases, with upside between 50-300bps across the CE4 central banks. Finally, our updated view on the long-term government bonds yields fair value suggests, on the two scenarios rates scenarios, large upside of 100-300bps across the region. Even considering our cautious assumptions, which have resulted in aggressive outputs, the consensus remains, in our view, extremely optimistic, looking at the current outlook, and we expect to see signs of a movement towards our estimates soon.