• Markets expected retail sales to rise by 3.4% y/y
• Online sales caused the big swing, rising by only 3.8% y/y
• Retail sales still rose by 2.9% y/y in Q4, up from 2.8% y/y in Q3
• Thus, household consumption growth remained robust, and we don't believe the December print will impact monetary policy

Retail sales, excluding vehicles, eased their growth to 1.8% y/y (wda) in December from 4.5% y/y in November (revised from 4.6% y/y), according to figures from the statistical office. The print was significantly worse than market expectations, which put retail sales growth at 3.4% y/y. Retail sales also fell by 0.1% m/m (sa), which is pretty untypical for the end of the year.

Data Download

The biggest swing was again in online sales, which moved from a 15.4% y/y jump in November to a modest 3.8% y/y increase in December. It appears that discount campaigns were not extended at the expected rate, leading to much less holiday shopping. As a result, non-food sales eased their growth from 6.3% y/y in November to 2% y/y in December, being the main reason behind weaker headline performance. Fuel sales weakened as well, as their growth went from 6% y/y in November to 3.9% y/y in December. Regarding in-person shopping, the biggest deterioration was observed in sales of cultural & recreational goods, which fell by 1% y/y in December after rising by 3% y/y in November. There was weaker performance in other categories, but not nearly as impactful as the items listed above.

Monetary policy impact

Thus, it appears that households did most of their pre-holiday shopping in November when discounts were bigger. In all fairness, online sales performed strongly in December 2024, so there was a high base. Still, it appears that online shops really pushed the envelope with Black Thursday promotional campaigns this time, which reflected on year-on-year comparison. Thus, we believe this didn't reflect as much on household consumption growth, it just shifted it within the quarter. Retail sales rose by 2.9% y/y in Q4, similar to a 2.8% y/y increase in Q3, so no major change in patterns. Moreover, retail sales rose by 0.8% q/q (sa) in Q4, improving from a 0.1% q/q (sa) fall in Q3. As a result, we don't believe the December retail print will have any major impact on monetary policy.

• The print matched market expectations precisely
• Energy prices were behind almost the entire deceleration in headline inflation
• This is due to the elimination of the renewable energy surcharge, as well as some energy price cuts
• Food prices eased growth as well, but their impact was almost completely negated by higher excise on alcohol and tobacco
• We estimate core inflation remained flat at 2.8% y/y, as service price growth remained robust, at 4.7% y/y
• Changes in the CPI basket shift the weight towards core goods and services
• We expect the CNB to keep the policy rate unchanged later on Thursday
• We also anticipate stable interest rates throughout H1, as long as inflation structure remains the same

CPI inflation eased to 1.6% y/y in January from 2.1% y/y in December, according to the latest flash release from the statistical office. The print matched market expectations, largely impacted by energy price cuts. Consumer prices rose by 0.9% m/m in January, slightly stronger than the expected 0.8% m/m, but the increase was softer than the 1.3% m/m reported a year ago.

Data Download

Unsurprisingly, energy prices had the main impact on headline inflation, as they fell by 3.7% m/m and by as much as 7.9% y/y. They were responsible for almost the entire deceleration in headline inflation, though there was downward pressure from food prices as well, whose growth eased from 1.7% y/y in December to 1.3% y/y in January. As a reminder, the statistical office broke down the category that included, food, alcohol, and tobacco prices, and now alcohol & tobacco prices are in a separate chapter. This was just in time, as alcohol & tobacco prices reported a stronger increase, up to 4.7% y/y in January, faster by 0.6pps m/m. It reflects the 5% increase in excise tax rates, effective as of the beginning of the year. Thus, the tax impact mostly negated the downward push coming from food prices.

Change in CPI basket gives a stronger weight to core goods and services

Another thing to note is that the CPI basket has been revised, and services now have a bigger weight, up from 38% to 41.3%. Meanwhile, energy's weight was reduced, from 12.29% to 11.23%, which explains why the impact from removing the renewable energy surcharge and declared energy price cuts was lower than we estimated. Moreover, food & non-alcohol beverages had its weight reduced from 17.7% to 16.9%, which also mitigates the downward impact from lower food prices. While the flash release doesn't provide a very comprehensive look, it appears that the weight of core goods and services has increase, which means that core inflation will likely see a stronger weight as well.

Core inflation likely to remain flat at 2.8% y/y

Speaking of core inflation, we estimate that it remained flat at 2.8% y/y in January. Service price growth eased only marginally, from 4.8% y/y in December to 4.7% y/y in January, though the easing appears to have been mostly on the back of regulated services. Meanwhile, core goods' prices saw their growth slow down from 0.3% y/y in December to 0.2% y/y in January (EmergingMarketWatch calculation). Thus, it appears that core inflation will remain significantly elevated, though the gap with headline inflation is largely due to energy prices. As a reminder, energy prices are included in the goods' category, and are classified as regulated prices, even though they have some market component. Therefore, lower energy prices will have zero impact on core inflation, though there may be some indirect effect, through lower production costs.

Monetary policy impact

Given the persisting divergence between headline and core inflation, we expect that the CNB board will keep the policy rate at its MPC meeting later on Thursday (Feb 5). While headline inflation is now noticeably below the 2% target, the main reason is the government's move to eliminate the renewable energy surcharge. As a reminder, the CNB board stated clearly it will not consider that decision during monetary policy considerations. If energy prices are excluded, inflation actually accelerated slightly, from 2.9% y/y in December to 3% y/y in January, so inflation pressure has not abated outside that one-off effect.

Future CPI prints may change this view, but as long as inflation number look like this, we don't see a room for monetary easing. The CNB will need to work harder than usual to argue its position, though, as the odds are many will expect that interest rates should decrease, at least slightly. There is a new staff forecast to be published this week, a summary coming on Thursday, and the full forecast on Friday (Feb 6), and it will be interesting to see how the projected inflation path has changed. There will also be adjustments to GDP forecasts, to the upside, so the odds are that core inflation projections will not be that favourable.

In any case, we believe our expectation of stable rates throughout H1 still stands. There may be some window of opportunity to lower interest rates later, starting in Q3, but it will largely depend on inflation developments and price growth structure.

The full CPI release, along with the new CPI basket, will be published on Feb 13.

• No ruling coalition MP went against the government
• The pretext was the threats made by foreign minister Macinka against President Pavel
• Regarding Turek;s appointment as environment minister, which was the reason for these threats, PM Babis said the matter was closed

The government unsurprisingly survived its first vote of no confidence, which took place late on Wednesday (Jan 5). Only 84 opposition MPs voted against the government, with 101 votes (50% + 1 vote of all MPs) needed. No MP from the ruling coalition joined the opposition during the vote, showing the government has not lost any support in parliament.

The pretext for the vote was the threats made by foreign minister Petr Macinka (Motorists) against President Petr Pavel. Macinka is unhappy that Pavel did not appoint Filip Turek (Motorists) as environment minister. It led to a massive rally in Prague last weekend, and an initiative supporting the president that quickly got 600,000 signatures. The opposition presented the no-confidence vote as an attempt to show resistance to this government, which has been far less respectful of the law than previously. Yet, we believe that the opposition missed an opportunity, as the scandal was apparently caused without the knowledge of PM Andrej Babis, so attacking Macinka directly could have been more effective.

Regarding Turek, PM Babis said the matter was closed, and that Turek would not become minister. Yet, the Motorists apparently refuse to nominate anyone else, so the environment minister seat will remain vacant. Macinka is currently acting environment minister, and this could continue indefinitely. Still, we expect that Babis will insist the Motorists finally name someone else, to move things along.

Government survives vote of no confidence, no one from Babis coalition aids opposition (Lidove Noviny)

Uncertainty with budget. Babis government lacks a new vision (Pravo)

Babis: Turek matter is over, he will not be minister (Hospodarske Noviny)

Babis at the president. Turek? We have more important things to work on (Mlada Fronta Dnes)

Schillerova's plan to raise VAT payment threshold will help business. She needs to co-ordinate with Brussels, though (E15)

Trump enters fight for rare earth metals. This time, he is doing it right (Lidove Noviny)

Havlicek's preferential laws for firms: CZK 5bn is in the game (Hospodarske Noviny)

Trump's actions are pushing Czech business to Africa. Exports rise at an unprecedented rate (E15)

End of an era. Last carriage with coal goes out of Stonava mine (Pravo)

Czechs drink less, but it is still much (Mlada Fronta Dnes)

• The previous government had only 25% trust last September, though
• Voters swung heavily along party lines, with ruling coalition voters backing the new government, and opposition voters being against it
• President Pavel enjoys 56% trust, again people being split across party lines
• Fire brigade, police, and the CNB are the three most trusted institutions
• The government is the least trusted one, just below the two houses of parliament

Trust in the new government reached 32% in January, according to an opinion poll of STEM, carried out on Jan 16-23. While trust is fairly low, it is noticeably better than what trust was in the previous government, at only 25% last September. There was a clear shift along party lines, as voters of the current ruling coalition improved their trust in the government significantly, while voters of the opposition decreased it. It is interesting that only 36% of Motorists' voters trust the government their party is in, possibly due to the issue around Filip Turek's appointment as environment minister.

In contrast, trust in President Petr Pavel was 56%, slightly falling from September. Division is again across party lines, as opposition voters have a high level of trust, while government voters see trust not exceeding 46%. Again, the Motorists are the outlier in the poll, as 46% of them trust the president, while only 32% of ANO and 11% of SPD voters do.

Among other institutions, the most trusted entity is the fire brigade, at 95% trust, followed by the police and the CNB (77% each), and local governments (75%). Meanwhile, the government is at the bottom in levels of trust, though closely behind the Chamber of Deputies (34%) and the Senate (40%).

Trust in the EU was relatively low, at 42%, down 2pps from September. In all fairness, trust in the EU hasn't been above 50% since 2011, and this level of support has been in line with the average. Interestingly, trust in NATO is much higher, at 58%, and it has remained relatively stable over the past 30 years.

• Skoda Auto did better than the market, reporting an increase of 5.9% y/y
• Petrol cars were behind the headline drop, down by 5.7% y/y
• Meanwhile, plug-in hybrids saw another strong growth, up by 38.9% y/y
• The EV segment maintained a 10% market share, fairly stable since mid-2025

New passenger car sales fell by 2.3% y/y (wda) in January, down to 18,043 units, according to figures from the SDA, the car importers' association. In non-adjusted terms, sales fell by as much as 6.7% y/y, mostly due to there being one fewer working day in 2026 than in 2025. Still, Skoda Auto did better than the market, reporting an increase in sales by 5.9% y/y (wda), taking almost a 40% market share.

Data Download

By fuel, it was petrol cars that drove sales downwards, falling by 5.7% y/y in January. Meanwhile, sales of plug-in hybrids were the only larger segment to report a noticeable growth, up by 38.9% y/y. In all fairness, diesel and battery electric cars reported calendar-adjusted growth as well, but it was muted. As a result, the EV segment preserved a 10% market share, which has been the case since mid-2025.

Used passenger car sales rose by 2.3% y/y in January, though they remained far behind new car sales. The used car segment has been reporting relatively steady monthly sales since 2024, and year-on-year changers have remained muted.

Total vehicle sales, including buses, motorcycles, trucks, tractors, and trailers, rose by 1% y/y in January, out of which new vehicle sales increased by only 0.2% y/y. As a reminder, used vehicle sales rose by 14.5% y/y in 2025, mostly due to vehicles other than passenger cars.

Question:

Taxes and social contributions for the self-employed were projected to increase as per the draft 2026 budget presented by the last government, and the ANO had indicated that it was unlikely to support this increase. What is the status on this, please?

The question was asked in relation to the following story: New 2026 budget brings modest fiscal loosening, big changes to come in 2027

Answer:

The legislation is still being voted in parliament, but the ruling coalition has already proposed an amendment that blocks the increase. There is nothing about it in budget documents, however, and payments on behalf of self-employed are expected to rise slightly, by CZK 3bn. We reckon this is based on an expectation of higher taxable incomes (due to a strong GDP growth) and better tax collection, but the finance ministry doesn't specify that explicitly. It represents a downside risk on the revenue side.

We must add that the wording is precisely the same as in the original budget bill, only the numbers are different, so the legislative change might not have been reflected yet. In the past, the Czech Fiscal Council has criticised governments for incorporating tax changes that have not been passed by parliament into budget bills, so this could be the reason it has not been mentioned. It still looks like the finance ministry is betting on the economic cycle and better collection to make up for cancelling the increase.

• The state government deficit will reach CZK 310bn (3.5% of GDP), while the general government deficit - 2.2% of GDP
• There will be a one-off cash windfall related to EU funds, whose payment was delayed in 2025
• We see some downside risks to economy growth, given that euro area prospects are worse than in the original budget bill
• Gross financing needs are projected at 8.2% of GDP, we estimate net bond issuance at around CZK 250bn, given the EU funds' windfall
• The new budget bill is not compliant with the fiscal responsibility act, but there is no effective enforcement mechanism to remedy that
• No major shift in fiscal policy, most significant changes are left for 2027
• Public sector wage hike and removal of renewable energy surcharge are largely covered by spending cuts
• It still leaves the expiration of windfall tax unaddressed, though the EU funds' windfall may be able to cushion it
• EU flows, apart from the one-off windfall, will decrease mostly due to lower RRF payments
• 2026 will be the first year with a structural deterioration since 2022, setting up problems in the medium term

The new 2026 budget bill will bring only a modest fiscal loosening, despite some expectations, though some issues will remain. Given how the new ruling coalition took over the executive at the very end of 2025, it decided that there is no time for a major policy overhaul, which is why most policy commitments will be implemented as of 2027. This will be the watershed moment for fiscal policy, while 2026 will see policies largely unchanged. As a reminder, the 2026 budget set a deficit target at CZK 310bn (3.5% of GDP) at state government level, up from CZK 290.7bn (3.4% of GDP) in 2025. Meanwhile, the general government budget will see a deficit at 2.2% of GDP in 2026, up from 2% of GDP in 2025.

While risks are technically on the downside, as GDP growth assumptions are optimistic, the 2026 budget will get an unexpected safety cushion, courtesy of the previous government. We refer to EU flows, as what the previous government did was to spend on EU-funded programmes in advance, with flows from the EU budget coming late. Thus, even though we see a non-negligible risk for a deterioration in the non-EU balance, it will be likely fully cushioned by the additional EU flows that were never received in 2025. As a reminder, the 2025 budget ended with a CZK 40.8bn deficit related to EU flows, so cash-based performance will likely turn out better than planned. We should emphasise that there isn't much the government can do, as EU rules do not allow these delayed payments to be included as revenue in the new budget.

Risks to growth remain on the downside, mostly due to sluggish euro area growth

Macroeconomic assumptions turned more optimistic since the first 2026 budget bill was presented, with GDP growth now expected at 2.4% in 2026, up from 2% in the original budget bill. In all fairness, this was largely fuelled by the domestic economy beating expectations in 2025, and projections now assume that household consumption will remain a strong driver of growth. There are also expectations of a solid recovery in investment, which is where uncertainty lies. We should note that the previous macroeconomic projections assumed euro area growth of 0.5%, while the current ones lower that to 0.3%. Thus, we see some downside risks to growth related to optimistic expectations.

Risks are not excessive, however, as a tight labour market and a public sector wage hike are expected to push nominal wages upwards, so strong household consumption doesn't come out of nowhere. Factors also include a softer headline inflation, at 2.1%, which should also promote consumption. Thus, the odds are that if there are deviations, they will remain relatively manageable. Nevertheless, we continue to see downside risks as non-negligible, as recovery in Germany, a main export market, is far from guaranteed, and risks related to global supply chains remain significant.

Fiscal loosening to remain modest in 2026, financing needs to rise

Fiscal loosening is projected to remain modest in 2026, as the new government has decided that it will implement the bulk of its fiscal policy commitments in 2027. Thus, the general government deficit will reach 2.2% of GDP in 2026, up from 2% of GDP in 2025. It is indicative that the structural balance will also deteriorate, to 2.2% of GDP, which is in line with IFI projections of a modest negative fiscal impulse in 2026. Given medium-term risks to the fiscal framework related to ageing, this is hardly an advisable policy. Yet, it has been a conscious choice on behalf of the new government, which decided that voter anger with fiscal consolidation is more dangerous than a fiscal deterioration in the medium to long term. It is why pension reform will be rolled back, which will not have an immediate fiscal impact, but will deny future savings.

The effective tax burden will decrease, from 33.2% in 2025 to 32.4% in 2026, largely due to the expiration of windfall tax. There are some residual payments due in early 2026, but this doesn't matter on an accrued basis, which is how general government parameters are calculated. In any case, the new government will have a reason to brag that it reduced the tax burden, in contrast with the previous one, which raised it to obtain to consolidate public finances.

Financing needs to reach 8.2% of GDP in 2026, though one-off windfall related to EU funds may lower them

The cost of structural deterioration can be seen in the gross borrowing requirement, which will rise from CZK 673.5bn (7.9% of GDP) in 2025 to CZK 733.6bn (8.2% of GDP) in 2026. As we mentioned above, there is a one-off windfall for budget performance on cash basis, which means that actual financing needs can end up lower than planned. Even then, financing needs are likely to end up at least modestly above those in 2025 in absolute terms. Gross bond issuance is planned at CZK 400-650bn, according to the funding and debt management strategy. Given that bond amortisation is projected at CZK 200bn, it puts net bond issuance at CZK 200-450bn in 2026. The budget law puts net long-term domestic financing at CZK 282.6bn, which falls comfortably within that range. Thus, the odds are net bond issuance will be around CZK 250bn, accounting for the windfall related to EU funds. No Eurobonds are planned, but the finance ministry may consider borrowing through EUR-denominated bonds issued under Czech law.

As far as external borrowing is concerned, it is planned to be exclusively through bilateral loans from IFIs, most likely the EIB. Net long-term external financing is projected at CZK 43bn, all on loans, and the finance ministry plans to draw loans from the EIB for up to CZK 72bn to cover EUR financing needs.

Structural deficit remains above legal limit, despite finance ministry's arguments

The main issue that remains is that the fiscal framework and deficit targets remain above the limit set in the fiscal responsibility act. While the finance ministry has already drafted changes, proposing a shift to a net primary expenditure rule, the current law still applies, and it sets the structural deficit limit at 1.75% of GDP in 2026. As seen from the table below, the projected structural deficit is 2.2% of GDP. The finance ministry has tried to argue that it is implementing EU legislation, as well as resolving issues with uncovered expenses in the original budget bill. Furthermore, it considers the new bill as a revision, rather than a new piece of legislation, which would mean that structural deficit limits no longer apply.

We consider such arguments as thin, and the Czech Fiscal Council agrees with us. Yet, the government is firmly decided to proceed with this budget bill, and there appears no one able to stop them. The fiscal responsibility act has no effective enforcement mechanism, and by the time this may become an issue, the law will likely be amended. For the sake of argument, we compared budget parameters to the proposed rule, according to which net primary expenditure can rise by no more than the sum of potential GDP growth and the GDP deflator (in nominal terms). Thus, the maximum net primary expenditure growth would be 4.3% in 2026, based on the latest finance ministry forecast. Yet, net spending growth comes nowhere close to that number, so the finance ministry is breaching even the new rule it plans to implement.

No major shift in fiscal policy in 2026, one-off windfalls to cover initial spending spree

As mentioned above, the government left most of its fiscal policy commitments for implementation in 2027, which means there are few changes in policy in 2026. The biggest policy changes regard the removal of the renewable energy surcharge and a deal to raise public sector wages by 8.4%. As far as the surcharge is concerned, it will create an additional expense of CZK 17.1bn, which was supposed to be covered by the surcharge. Meanwhile, the government has shown itself as quite generous regarding public sector wages, though the impact has been mitigated by a decision taken by the previous government.

What we refer to is non-teaching staff at schools, whose salaries will be now covered by local governments. This was a contentious issue with the previous government, as local governments protested against being burdened with additional expenses. Yet, the previous government argued that it had raised the share of nationally collected tax transferred to local governments, so they didn't have such a strong argument. In case, this is how the central government will need to cover only about half of the cost of higher public sector wages, rather than the full CZK 47-48bn projected for the general government.

In all fairness, both of these expenses were covered by reducing defence spending from the initial budget bill, and cancelling a conditional expense related to the expansion of the Dukovany nuclear power plant. On the other hand, the new government is not doing anything about the much lower tax revenues from corporate taxes, which will be caused by the expiration of windfall tax. While there will be some residual revenue due in early 2026 (only on cash basis), the gap is more or less equivalent to the CZK 26bn increase in the state deficit target, which remains unaddressed.

State government budget may see a one-off windfall related to EU funding

The state government budget doesn't contain big surprises, aside from the factors listed in the previous section. Namely, windfall tax expired at the end of 2025, leading to a CZK 26.7bn tax revenue shortfall, while the cancellation of the renewable energy surcharge will push down non-tax revenue. Gross EU flows are also expected to fall, mostly due to expectations for lower RRF payments, though these could benefit from a one-off shortfall, thanks to the previous government. In more detail, the previous government went ahead and made some EU-related expenses before receiving payments from the EU budget, which resulted into a CZK 40.8bn cash deficit in 2025. These payments will be made in early 2026, and the January budget print has already indicated that. Yet, EU rules do not allow that unforeseen revenue to be included in the 2026 budget bill, which is why we will likely see a one-off windfall in 2026.

Other than that, social contributions are expected to drive tax revenues, projected to rise by 7.2%. Corporate income tax revenue is expected to fall by 3.9%, entirely due to the expiration of windfall tax, even though economy growth and the higher corporate income tax rate (by 2pps to 21%) will have a positive impact. Excise tax revenue will also increase due to the planned 5% hike in alcohol and tobacco excise tax, with 2026 being the penultimate year when such hikes will apply.

On the spending side, social expenses remain the primary growth driver, rising by 3.8%, followed by transfers (up 3.9%) and personnel (up 10.1%). The latter two categories reflect the need to cover renewable energy subsidies that were previously funded by the surcharge, as well as the 8.4% wage hike in the public sector. On the other hand, no major education subsidy is envisaged this year, which will reduce expenses. Furthermore, capital spending has maintained a modest growth, at 4.9%. While the new government has envisaged additional transport infrastructure spending by CZK 26bn, this is largely mitigated by the removing the planned expense on the Dukovany nuclear power plant.

EU flows to decrease mostly due to lower RRF payments

Gross EU flows are expected to decrease by 9.3% in 2026, mostly due to lower planned payments from the Recovery and Resilience Facility. The previous government has managed to push absorption to about two thirds of the total allocation, which is why there is less to be received in 2026. As we have been pointing out in the previous sections, however, there will be a one-off windfall as far as EU flows are concerned. Namely, there were delays in planned EU flows in 2025, which will eventually arrive in 2026. There is already evidence of that in the January budget print, and we expect more in Q1.

Thus, the odds are that we will not see an actual decline in EU-related flows in 2026, though under EU rules, these cannot be projected in the budget bill. There are no other major developments, as funding is now exclusively coming from the 2021-2027 MFF.

Conclusion

Overall, the 2026 budget will see a relatively modest fiscal loosening, though it will likely represent calm before the storm. Regretfully, we will witness structural deterioration for the first time since 2022. While there will be some one-off windfalls to cushion the impact on cash basis, the new government is clearly moving into a direction that will boost medium-term fiscal risks. Plans to roll back pension reform will deny future fiscal savings, and intentions to lower corporate taxes as soon as in 2027 will cause some short-term deterioration as well. Furthermore, the new government intends to lead a robust industrial policy, which will add to spending in the years to come.

Thus, while 2026 will be relatively calm on the fiscal policy front, we expect that general government deficits will likely exceed 2.5% of GDP from 2027 onward. We expect that the government will be careful to maintain deficits within SGP rules, so the odds are the deficit targets will be closer to 2.5% of GDP than to 3% of GDP. Still, it will be a period with noticeable fiscal loosening that will create plenty of problems for the next administration.

• Yields decline from previous tender, mostly for the longer bonds

The State Debt Management Agency (AKK) issued HUF 165.0bn of three-, five- and ten-year government bonds on the latest primary auction, AKK data showed. The issued amount was significantly higher than the original auction size of HUF 70.0bn with the AKK expanding the volume of all three bond series on the back of strong demand. Total bids reached HUF 350.1bn and translated into a bid-to-cover ratio of 5.0x, while the over-issuance brought the coverage ratio closer to AKK's implicit target of 2x. Average yields declined visibly compared to the previous auction two weeks ago with the downward pressure being more visible for the longer term bonds. Yields were almost flat with the respective secondary market benchmark rates, specifically 1-2bps lower for the three- and five-year bonds and 1bp higher for the ten-year bond.

• Orban still leads significantly in terms of assessments for full suitability
• Balance of positive votes shifts in favour of Magyar since previous poll in Nov 2025

The majority 54% of voters considered the opposition Tisza Party leader Peter Magyar to be suitable for PM, according to a poll by the Median agency commissioned and published by the pro-opposition news portal Heti Vilaggazdasag. Magyar beat PM Viktor Orban who was considered suitable by 46% of respondents in the poll. The caveat in these figures was that Orban attracted definite approval for PM by twice as many voters than Magyar. Orban was considered fully suitable for PM by 31%, compared to 16% for Magyar. The difference was explained by a higher share of voters who considered Magyar as rather suitable - 38%. Some 15% of respondents labelled Orban as rather suitable.

The lead of Magyar among the overall suitability votes represented an improvement over the previous Median survey from Nov 2025, the portal noted. Magyar and Orban were even with 48% of full or partial approval votes in the previous poll. We consider it possible that the slight decline of Orban's approval rating could be related to the child abuse scandal in a state correctional facility. The miscommunication about the results of Orban's meeting with US President Donald Trump regarding the alleged US promise for a financial shield could be another factor, weighing on voter perceptions about Orban, we suspect. At the same time, we explain the large difference between the full suitability vote between Orban and Magyar with the diverse voter base of the Tisza Party, as well as the fact that Magyar's leadership skills have not been tested yet.

• Retail sales dynamics closely follows net real wage, employment trends
• Seasonally-adjusted sales rise by 0.1% m/m, recover to their pre-war levels
• Food, non-food segments weaken in December, remain below 2025 average

Retail sales increased by 3.5% y/y in December and picked up compared to the 2.5% y/y growth in the previous month, the statistical office (KSH) reported. The print was the third highest growth for the year so far and beat the cumulative 2.9% increase for the full 2025. We still do not consider it especially encouraging, given that the strength came entirely from the fuel segment, while food and non-food sales slowed down and were below the 2025 average. The growth pattern of total retail sales has closely followed the developments in the net real wage and employment, in our opinion signalling unchanged spending propensity during the past period. Seasonally-adjusted retail sales rose by 0.1% m/m in December, which extended the upward trend in retail sales since late 2023. The adjusted retail sales have rebounded back to their pre-war levels, we note.

Data Download

Data Download

Food sales slowed down to a 2.1% y/y growth in December. We think that food consumption has been supported by the government distribution of food vouchers for pensioners that were worth a total of HUF 82.7bn. The impact of this measure seemed to peak in November, keeping food sales relatively elevated in the last two months of the year, we assess. The slowdown in food inflation likely also supported food consumption in December, in our view.

Non-food sales eased to a 4.3% y/y growth in December, mostly in line with the full-year growth of 4.4%. The breakdown showed improving demand for manufactured goods in non-specialised stores and consumer durables, which we attribute to improved borrowing appetite. Sales growth in clothing and electronics also picked up, but the favourable trends in these segments were completely offset by weakening in internet orders. Internet orders formed the highest 23.7% share of the total non-food sales in December and their y/y increase weakened notably to 2.8% y/y during the month, possibly indicating at least a temporary shift to conventional shopping around the end-year holidays, we believe.

Data Download

Retail fuel sales were the only major segment with an upward drive, picking up to 1.7% y/y growth in December. The stronger growth seemed to reflect at least in part a low base from the previous year, in our opinion stemming from price impacts. The deferral of the automatic excise tax hike on fuels could keep fuel demand elevated in the short term, we expect.

Head of Tisza research centre also admits that Fidesz victory would not be surprise (Magyar Nemzet)

Home Start programme: Number of loan agreements disbursed exceeded 22K (Magyar Nemzet)

PM Viktor Orban: We have funds to fulfill all our commitments (Magyar Nemzet)

Paks II nuclear power plant - "first concrete" is being poured and actual construction work can begin (Magyar Nemzet)

BMW and Mercedes fight back: Hungary could be front line of German-Chinese automotive war (Vilaggazdasag)

PM Viktor Orban unexpectedly announces: He gave Trump dates for his arrival in Budapest - "American president owes us, come and greet the Hungarians" (Vilaggazdasag)

PM Viktor Orban says it is unfair that producers receive HUF 50 for potatoes, while their price climbs to HUF 300 in stores (Vilaggazdasag)

PM Viktor Orban: "We have achieved over 100% in past four years" (Heti Vilaggazdasag)

Home renovation support for pensioners fails, even though PM Viktor Orban was very optimistic (Heti Vilaggazdasag)

Government-friendly oligarch Lorinc Meszaros, MVM and E.ON distribution companies are exempted from special utility tax (Heti Vilaggazdasag)

• Workers report shift reduction, disassembly of production lines, delays in start of new recruitment
• Company links reduced shifts to restructuring, denies delays in capacity expansion plans

The Hungarian car plant of German automotive producer Mercedes has cut shifts gradually from three to one and entire production lines have been dismantled, the news portal 24.hu reported citing unofficial information by a plant employee. The reduction of the shifts meant in practice that capacity utilisation has been down to not more than 50% for months, according to the source. This process was not accompanied by layoffs, but workers had less work than before, it claimed. The news about the Mercedes plant come in contrast to recent reports that the capacity of the new BMW plant in Debrecen had been fully booked for 2026, so the company could need to add more shifts than initially expected, we note.

The company denied that production lines have been disassembled for an alleged transfer to a Polish facility. It did confirm the shift reduction for the portal, saying it will last from January till April, but explained that the downsizing was due to the pending expansion of the plant with the completion of the new production facility, that was worth EUR 1bn. The plant was scheduled to start production of models based on two new company platforms, so deep transformations and restructuring was under way, it added. The reduction of the number of shifts had no impact on the core staff count at the plant, it underlined. The company further said that recruitment for the plant's expansion had started in Oct 2025, while the portal's sources claimed that this had not happened yet. The expansion was expected to add 3,000 jobs to the company's headcount in the medium term, we note. The portal G7 showed statistics from Opten, according to which employment at Mercedes Hungary increased to 4,980 people at end-2025, compared to 4,843 people at the start of the year.

Output at the Mercedes plant was down by 43% y/y in Jan-Sep 2025, according to an analysis of the National Bank of Hungary (NBH), the portal reminded. The output shortfall could be likely explained by earlier company announcements for the relocation of the production of the CLA model to Germany, it noted. A simultaneous decision to bring the production of the A-Class model to Hungary could be executed no earlier than Q2, it said. The plant's expansion was progressing only slowly, so output of models based on the new platforms has been on hold, it reported. The company, however, stressed that preparations were going in line with plans and were currently in the stage of construction of two new buildings for body and assembly lines, and a third building for battery assembly.

PiS tries to blackmail PSL with contacts with Trump [PiS tries to say that if PSL doesn't agree to back its govt it will seek to get Americans to cut off contact with Defense Ministry, which is led by PSL leader and Deputy PM Kosiniak-Kamysz] (Rzeczpospolita)

Who wants to overthrow Tusk's govt [rumours say Trump wants to sink KO-led govt, transgressing prior norms; PSL to have PM, backed by PiS, but they would need one more partner and PSL rejects co-op with PiS; but Trump said to warn PiS against co-op with Braun's Konfederacja KP] (Rzeczpospolita)

Polish labour market is becoming increasingly foreign-oriented [no. of foreigners legally working in PL rises 96,000 in 2025 to 1.29mn; rise came even as the number of employed for the year decreased] (Rzeczpospolita)

Nawrocki targets Sejm Speaker Czarzasty (Gazeta Wyborcza)

Finally, a real breakthrough in CHF case law (Rzeczpospolita)

Who did President Karol Nawrocki pardon? (Rzeczpospolita)

Supreme Court head Manowska to fight for re-election (Gazeta Wyborcza)

Poles are concerned about safety of KSeF (Rzeczpospolita)

Another crisis in govt protection service (Gazeta Wyborcza)

Who earns the most in Poland these days (Gazeta Wyborcza)

• MPC says that inflation is likely to decrease in Q1, setting stage for March cut

The Monetary Policy Council held interest rates Wed. in a decision that matched the consensus, though defied a sizeable minority expecting a 25-bp cut, and published a post-sitting statement that was mostly the same as that published when it held rates in January with the exception that it contained a dovish outlook. The MPC indicated that it did not get updated CPI inflation data, and again noted that CPI inflation slowed to 2.4% y/y in December from 2.5% in November, as was already available for the January sitting [the stats office updates its basket once a year and changes its publication scheduled in Jan and Feb]. But whereas in January, the MPC only noted that core inflation was likely to have slowed in December, the MPC said in February that incoming information suggested that CPI inflation might decrease in Q1 2026 and remain at a level consistent with the NBP inflation target in the coming quarters.

The MPC likewise said that GDP growth in 2025 was reported at 3.6%, which it said signalled that economic growth in Q4 2025 was probably close to that observed in Q3 2025 (3.8% y/y). It added that data from the labour market indicated that, despite an increase in December, wage growth in the enterprise sector slowed down over the course of the previous year. This was accompanied by a fall in employment in this sector, it said. Wage growth did rise in December, and we believe that probably worked against a cut in March, though the MPC does not seem very upset about it.

The MPC comment on the outlook contained all the same factors as listed in January. It thus said its future policy will rely on incoming information on prospects for inflation and economic activity with risk factors listed as fiscal policy, the expected recovery of demand, further developments in wage growth, and the macroeconomic situation abroad, including changes in global commodity prices and inflation. To note, as in January, it dropped energy prices as a risk factor.

Overall, the inclusion of the statement on the positive inflation outlook likely sets the stage for the MPC to cut rates again at its next policy sitting on Mar 3-4 even though the council will have only partial, preliminary inflation data for January (the final January and February inflation release won't come until Mar 13). But the MPC will have the updated CPI and GDP projections that will also extend the policy horizon to 2028. The new projection for 2026 is bound to be at least 0.4pp lower than the existing November one since the latter included a much higher power tariff. It can't be ruled out that some event will lead to a delay in the cut to April, but we believe there is a much stronger likelihood of the council cutting in March.

• Demand to grow for corporate, housing, and consumer loan segments in Q1

Banks expect to ease lending policies only for corporate loans in Q1 2026, but demand is expected to rise for the key sectors of corporate, housing, and consumer loans, according to the NBP's Senior Loan Officer Survey for Q1 published on Mon. The NBP noted that in Q4 banks eased lending criteria for most types of loans with the exception of consumer loans driven by increased competitive pressure from other banks. For Q1, it said that banks do intend to ease lending criteria for corporate loans but to maintain the current criteria for other types of loans.

For corporate loans, lending criteria was eased in Q4 due to competitive pressure, with loan margins and non-interest costs of credit decreased and the maximum loan amount raised. Demand was unchanged in Q4 on the part of SMEs, but it rose for large enterprises as a result of increased demand for financing of working capital and fixed assets. For Q1, lending policies are to be eased and demand is to increase, especially on the part of large enterprises.

In housing loans, Q4 saw lending policies eased also because of increased competitive pressure, but also because of lower NBP interest rates. Loan margins were reduced as well. Demand did actually fall slightly due to the deterioration of the economic situation of households and increased use of alternative sources of financing. Going to Q1, banks expect current lending policies to be maintained, though they do expect higher demand.

Consumer loans saw no noticeable change in lending policies in Q4, though they did see an easing of most lending conditions due to competitive pressure and NBP rate cuts. Demand rose, partly due to increased demand for financing the purchase of durable goods and a decrease in the use of alternative sources of financing. For Q1, no changes in lending policy are expected, but demand is expected to continue to grow.

• Three of 8 NBP Management Board members' terms expire in 2026
• This group includes Glapinski's right-hand and First Deputy Governor Kightley
• MPC's Litwiniuk said to want to join board

NBP head Adam Glapinski, PM Donald Tusk, and President Karol Nawrocki are reported to be in the midst of talks to agree on several coming replacements to the NBP's Management Board, the broadcaster TVN24 reported Wed. Glapinski leads the 8-strong board, all of whose members were named during the previous Law and Justice (PiS)-led rule. This group includes Glapinski's right-hand Marta Kightley, who is the first deputy governor of the NBP and whose term expires on Mar 8. Prior reporting suggested that Glapinski was willing to soften the Monetary Policy Council's view of the 2026 budget in return for support for Kightley from Tusk, who must countersign any nomination to the NBP Management Board that comes from the president. Another board member's term expires on Mar 1 (Piotr Pogonowski) and yet another on Nov 4 (Adam Lipinski, former close ally of PiS leader Jaroslaw Kaczynski).

TVN24 reported that talks were expected to continue for some time. Glapinski was said to want Kightley to stay on the board. The report was too that MPC member Przemyslaw Litwiniuk wants to join the board. Litwiniuk's MPC term doesn't expire until Jan 26, 2028. He was named by the Senate, which is dominated by the ruling coalition (who would name his replacement if he were to leave early).

If Tusk doesn't agree and no one replaces the board members, the board can operate with only 6 members, but once Lipinski's term expires in November there would not be enough members for a quorum.

Overall, TVN24 presented the news as potentially leading to an "unprecedented" deal between Tusk, the leader of the senior ruling Civic Coalition (KO), Glapinski, who has always been close to PiS, and Nawrocki, the PiS-backed president popular among young far-right voters. It is unclear how far the deal will go, but it wouldn't be surprising to see Kightley renamed and then the other board positions involve some kind of compromise. One can, however, never rule out a political fight over this issue, particularly as the KO-led ruling coalition does like to point to alleged politicization at the NBP under the reign of Glapinski. That said, Glapinski has not been as dismissive of the government in recent monthly press conferences and perhaps he has been trying to get Kightley renamed. To note, if she is re-appointed, Kightley will become a leading candidate to succeed Glapinski in June 2028 since the NBP governor is nominated by the president, but must win an absolute majority in the Sejm (though her ultimate fate would depend on the Sejm to be elected in the autumn 2027 elections). Another final note is that a deal on this issue might make further progress in the State Tribunal case against Glapinski less likely.

Question:

What happened to this in the end? Will the excise taxes be fixed in 2026 in the end?

The question was asked in relation to the following story: FinMin says alcohol and sugar tax vetoes won't prompt 2026 budget changes

Answer:

There is no word about any fixing of the budget and I think the FinMin will just deal with the shortage, which isn't necessarily big at PLN 3bn or so. But it was known the president would likely veto these bills right from the beginning and so I have a feeling too that either the FinMin has created a reserve for this money or factored the fact that it wouldn't likely show up in the end. For political reasons, the FinMin wanted to underscore how the president's vetoes are undermining public finances even though the president slams the government for a high deficit.

As for inflation, the thing to keep in mind is that the previous Law and Justice (PiS) government passed a long-term hike to the excise tax for alcohol and it is still due to rise by 5% in 2026 according to that schedule. For comparison, the government wanted to raise it by 15%. The excise on alcohol has been rising by 5% for the past couple of years, and it looks like this usually ups prices by about 1% in January and February as companies digest the rest of the increase. There will thus be a very slight rise, though my calculations show 0.1pp or so.

The sugar levy wasn't supposed to rise, however, and so the lack of an increase will mean there is no inflation impact.

In terms of excise, however, there is also a 20% hike of the excise on cigarettes on Jan 1. That followed the 25% rise in 2025 that went into effect on Mar 1, 2025. There was a steady hike in tobacco inflation last year that started before the hikes went into effect and saw 2.1% m/m and 2.6% m/m in Jan and Feb to 1.0-1.9% m/m increases for most months. The increase in 2026 will thus likely be spread out, but looks likely to add some 0.2pp to inflation or so.

• Registration declines compared with a big 21.6% y/y rise in Dec
• Registrations fall 40.1% m/m to 45,691 units in Jan from 76,290 units in Dec
• Samar lifts 2026 forecast and now expects 5% increase

Polish passenger car and light commercial vehicle (LCV) registrations fell 7.1% y/y to 45,691 units in January from 49,171 units the year before, according to data published Wed. by the car-market monitoring company Samar. The January total fell a sharp 40.1% m/m from 76,290 units in December.

The company noted that January registrations traditionally fell from December levels due to lower institutional activity at the beginning of each year that in turn results from larger corporate purchases made by companies in the final quarter of the preceding year. Among passenger cars, institutional buyers comprised 63% of the market in January vs. 37% for individuals. Samar added that the December result was a record high, and significant demand in late 2025 might have been due to regulations that went into effect in 2026 that linked the depreciation limits for company cars to CO2 emissions. But it noted that Chinese autos continued to do well with a 10.2% market share (down from 14.5% in December but above the 8.2% share in 2025).

In the breakdown, passenger car registrations fell 9.0% y/y to 40,284 units, which marked a 40.6% m/m fall. LCV registrations rose 9.8% y/y to 5,407 units in January in a total that marked a 36.5% m/m decrease.

For 2026, Samar has increased its forecasts. It now expects passenger car registrations to rise to 625,000 in 2026, previously seeing 605,000-610,000. LCV registrations are to rise to 74,000, the target up from the previous 72,000-73,000. The new total is total registrations of 699,000, compared with 677,000-683,000 before. Samar's new full-year forecast would deliver a 4.7% rise for 2026, up from 1.4-2.3% before.

Overall, vehicle registration totals continue to be relatively strong, reflecting corporate strength above all, but also the increasing penchant to buy lower cost Chinese cars. This general trend is expected to keep up in 2026, which is a year expected to see relatively fast GDP growth. Still, nominal GDP is seen rising some 6-7% this year and so the registration total looks to be slightly shy of that.

• Post-sitting statement to be published at 16:00 CET
• Glapinski to hold his presser on Thurs. at 15:00 CET

Poland's Monetary Policy Council decided Wed. to hold its key rate at 4.00% and though that matched the consensus expectation, a strong minority had expected another 25-bp cut, according to a statement. The MPC will publish its post-sitting statement at 16:00 CET. MPC head Adam Glapinski will give his monthly press conference on Thurs. at 15:00 CET to further explain the move beyond the usually brief post-sitting statement.

Data Download

Overall, the MPC cut rates by 25bps in December, bringing to 175bps its reduction in 2025 and then indicating that it would take a pause in order to gauge the impact of its reductions and see where inflation goes in early 2026. But CPI inflation came in lower than expected in December, energy prices ceased to be an inflation threat, and that led some MPC members to say that February might see another reduction even though there is no new CPI inflation data. Statistics Poland (GUS) changes its release schedule early in the year while it updates the CPI basket, the new version of which will be released in mid-March. Those changes see no publication of flash inflation releases, meaning today's meeting was held with only the December data that the MPC had already for the January meeting that led to a rate hold. GUS will also publish only partial, preliminary inflation data for January, which will be out for the March sitting (held before the release of the new basket).

Glapinski's comments on Thurs. will be key in determining the outlook, but, like many, we think the MPC will be in position to cut in March despite the fact it will not have full inflation data, but as the inflation and GDP projections will be updated for that sitting. That is because inflation is at the target and expected to stay there. There is also the lack of a big energy price spike that means the November inflation projection -- which was based on a no-policy outlook -- is over-estimated by maybe 0.4-0.5pp. Though economic activity is expected to pick up this year, much of that is due to higher investment. Still, Glapinski's comments on Thurs. will be key for the outlook, which is likely to see at least 50bps cut this year, but whether there is more or less will very much depend on the council's updated stance.

• Poland has been hit by a cold spell of late

Energy Minister Milosz Motyka noted Wed. that though district heating costs are restricted by regulated tariffs, other prices can fluctuate a lot during the winter rising by as much as 10% in December and January before falling in February, according to comments made to public radio. In the wake of very cold weather that has hit Poland of late, Motyka said he doesn't expect a sharp increase in heating costs, and he noted that natural gas prices had fallen by 10% in recent days compared with the previous month. When asked if the government was preparing any special program to counter any rise in heating costs, he recalled that the government had already passed the heating voucher system for low-income district heating clients.

Motyka also said that the energy system had performed well despite record gas and power consumption of late due to the cold. The minister added that Poland had a diversified energy mix that guaranteed energy security. On Feb 3, the national power system noted the highest ever demand, which was met by record power generation as well.

Overall, heating prices were capped in the previous heating season, but these measures were lifted at end-June 2025. That led some heating prices to rise sharply, which prompted the government to launch the voucher system, though this is relatively minor. The very cold weather seen in Poland of late will no doubt hit some people hard, especially as there are many different sources of heat, from coal to peat to wood burning to gas and electricity for heat. Heating prices did also rise more than they had in recent years in September and October, though these gains have waned in the past two months. This factor will thus be something to watch going to January and February and the potential impact on inflation.

• Government tasks Ernst&Young on 15 July Martyrs, FSM bridge rights
• Plan spans nine toll highways and government brings BTY Group for technical work

The government reportedly moved forward with preparations to privatise the operating rights of two landmark Bosphorus crossings in Istanbul and a wider portfolio of toll-road assets, Bloomberg claimed, citing anonymous officials familiar with the matter. For this purpose, the government mandated Ernst&Young to advise on the potential sale of the operating rights for the 15 July Martyrs Bridge and the Fatih Sultan Mehmet Bridge, the portal added. The scope also covered at least nine toll highways and Canada-based BTY Group has been appointed as the technical adviser for the sale process, the same report indicated. Authorities planned to launch the formal tender process later in the year, while official sources have not yet confirmed the plans at the time of publication, Bloomberg noted.

The same claims were also made as of September, we remind. As we have previously emphasised, we regard this initiative as highly probable, particularly given the trajectory outlined in the recent medium-term programme, which anticipated privatisation receipts for 2026 to be around TRY 185bn, approximately USD 4.25bn at present valuations. Notably, this figure stands in stark contrast to the annual average of TRY 34.5bn observed in recent years.

Turkey without terrorism report to be submitted to Parliament Speaker's office soon (Hurriyet)

MHP MP Yildiz on former pro-Kurdish HDP co-chair Demirtas: We must abide by decisions of ECHR and constitutional court (Hurriyet)

President Erdogan continues his middle east trip in Egypt (Hurriyet)

CPI-based REER index rises to 102.17 in January (Sozcu)

Turkish products are cheaper in German supermarkets than in Turkey (Sozcu)

Turkish competition authority launches Android investigation into Google (Sozcu)

FinMin Simsek: Economic program enters its final stage (Sozcu)

Turkey's automotive sector continues its momentum: Exports record-breaking January (Sozcu)

Price gouging inspections at chain supermarkets before Ramadan (Sabah)

Stock market operation is centred in Istanbul and spanning eight provinces: 22 suspects arer detained (Sabah)

President Erdogan on US-Iran tensions: We are ready to play facilitating role (Sabah)

• Commission finalises joint report endorsing right to hope consensus next week
• Parliament must enact laws to extend right to hope to PKK leader Ocalan
• Implementation affects multiple high-profile cases including Demirtas, Kavala, Yuksekdag

The cross-party commission report on the renewed Kurdish peace process was expected to be finalised the following week and the parties reached alignment on the 'right to hope' and that the text would include this element, MHP deputy chair Feti Yildiz stated following the meeting of the National Solidarity, Brotherhood and Democracy Commission's drafting group. He also said the commission did not face any serious political fracture lines and that the last meeting will complete the wording, move the document to a vote and then forward it to the speaker of the parliament. The commission planned to convene again in the coming days to give the report its final form, hold the vote and submit the outcome to the Assembly Presidency, the media noted.

The report will recommend compliance with European Court of Human Rights rulings, Yilmaz said, a remark that came amid heightened debate after MHP leader Devlet Bahceli's recent comments on the right to hope and calls linked to the release of former HDP co-chair Selahattin Demirtas, we note. Stronger compliance line on Strasbourg jurisprudence could carry broader legal and political implications, since any shift that materially affected the Demirtas file could also intensify inspection around other high-profile detention and conviction cases, including those of Figen Yuksekdag and Osman Kavala, the media talks underlined.

The right to hope framework rested on ECHR case law addressing life sentences without a realistic prospect of release, originating from the 2013 Vinter judgment against the UK, we remind. The court held that irreducible life imprisonment without a review mechanism breached Article 3 of the Convention, requiring a structured review of detention after a defined period, with legal commentary frequently referencing a review point around 25 years alongside periodic reassessment of release conditions.

In Turkey's context, PKK leader Abdullah Ocalan's 1999 was subject to a death sentence converted into aggravated life imprisonment after the abolition of capital punishment in 2002, while subsequent legislative arrangements limited access to conditional release for certain categories of offences tied to state security and organisational activity. However, ECHR judgments found violations in relation to the absence of a release prospect and detention conditions at the Imrali prison, media-cited legal assessments said, yet Turkish authorities did not implement those rulings.

To the best of our knowledge, enabling the right to hope for such cases would have required legislative action by the Parliament. At that stage, it remained unclear whether implementation would necessitate a constitutional amendment. Were this to be the case, the process would have demanded a supermajority of 400 votes, implying a breadth of cross-party consensus that was not apparent at the time, in our assessment.

• Services inflation climbs by 7.4% m/m, carries larger weight in index with Turkstat's recent revision
• Food inflation rises as vegetables and meat prices climb sharply higher
• Administered price updates stay below historical norms, aiding disinflation process

Consumer prices climbed by 4.84% m/m in January, while annual inflation dipped slightly by 0.24pps to settle at 30.65%, the CBT said in its monthly price developments report. Core inflation indicators also showed downward movement, it noted. The B index's y/y change fell by 1.55pps to 30.11%, and the C index y/y change decreased by 1.28pps to 29.80%. Turkstat updated the CPI consumption basket classification and the base year during this period, significantly altering the index's weighting structure, the CBT commented. The service sector's share within the index jumped by 7.4pps to 38.4%, whereas the weight of goods retreated to 61.6%, it unveiled. Additionally, the weights for the B and C indicators rose by 5.2 and 4.5pps respectively, the report stated.

Service prices surged by 7.39% m/m in January, though the group's y/y inflation actually dropped by 3.76pps to 40.23%, according to the report. Monthly inflation in the services sector accelerated compared to the previous month, driven largely by items sensitive to labour costs, seasonal pricing and backward indexation behaviour, in line with our recent analysis. In the food sector, unprocessed food items, particularly vegetables and meat, heavily influenced the monthly inflation figures, the CBT said. Conversely, core goods saw a modest price increase of just 0.51% m/m, bringing the group's annual inflation down by 0.26pps to 17.45% y/y, it noted.

Adjustments to administered prices and fixed taxes occurred at a lower rate than in previous years, which provided support for the disinflation process, the report said. Monthly price increases in the energy group remained limited compared to January of the prior year, it added. While producer prices showed a moderate trend in the preceding two months, that momentum strengthened somewhat during this period, it indicated. Under these conditions, the underlying trend of consumer inflation recorded a rise specific to the seasonality of the period, the CBT highlighted.

• Rigid momentum persists despite minimum wage restraint and forward-looking fee adjustments, in our view
• Soaring fresh food costs drive goods inflation significantly higher to 3.0% m/m
• Telecom price hikes push overall services inflation up to 2.7% m/m
• Strong underlying inertia puts the CBT's 16% target at risk, in our opinion

Seasonally-adjusted inflation gathered pace in January, with CPI rising by 2.9% m/m compared to 1.7% m/m in December, state statistical institute Turkstat data showed. The reading looked notably firm when set against last year's January outcome of 3.2% m/m and it held up despite a softer increase in the minimum wage and more restrained, forward-looking adjustments in administered prices and fees, we underline.

Data Download

Goods prices drove most of the upside, advancing by 3.0% m/m. Food and non-alcoholic beverages led the increase, rising by 4.1% m/m, as unprocessed food dominated the move. At the breakdown, we observed that fresh fruit and vegetables posted a sharp 10% m/m rise, which materially lifted the broader food basket. Energy inflation remained comparatively contained at 2.3% m/m, trailing the overall goods trend. Services inflation also strengthened, rising by 2.7% m/m in January. Telecom prices provided the clearest push, accelerating by 5.4% m/m. Transportation services followed with a 3.1% m/m price increase, while rent inflation rose by 2.8% m/m. Other services components stayed below the headline services pace, we emphasise.

Notably, underlying measures pointed to persistent inertia, we assess. The Core B index increased by 2.5% m/m and the Core C - by 2.45% m/m, while their three-month moving-average annualised rates held near 29%, far exceeding levels compatible with the CBT's year-end target of 16%, we note. This configuration reinforced our long-standing view that the prevailing target path looked increasingly challenging to achieve under prevailing price-setting behaviour. Furthermore, we assess that it increased the likelihood that the CBT would eventually need to recalibrate its target framework to protect policy credibility as the gap between guidance and realised inertia persisted. Against this backdrop, our year-end inflation projection remained around 25%.

• Next MPC meeting: Mar 12, 2026
• Current policy rate: 37.0%
• EmergingMarketWatch forecast: Cut by 100bps
• Rationale: January inflation overshoot, unanchored expectations, structural food pressures, weak base effects render 16% year-end target untenable, creating credibility dilemma

We expect the CBT to deliver a gradual easing step at the upcoming MPC meeting, with a 100bps cut the most plausible outcome. Even so, we still judge additional accommodation to be premature, given lingering upside risks to inflation through 2026 and the CBT's still-binding 16% target.

Data Download

First and foremost, the January inflation print of 4.84% m/m overshot market expectations and demanded scrutiny. Hitting the CBT's year-end target of 16% requires m/m inflation to average roughly 0.9% for the rest of the year. We view this pace as unrealistic given current indexation and repricing dynamics. Historical data offers little comfort here, we note. Since 2005, February inflation has been consistently higher than the January level. In fact, February prints have undercut January figures only twice in that period, mainly in 2009 and 2016. If this patterns hold, February could deliver another sharp monthly increase, pushing the disinflation timeline well beyond the trajectory implied by the CBT's target, we assess.

Second, we see food inflation as the central near-term vulnerability. Three channels stand out, we think: (i) Ramadan-linked pricing behaviour that tends to lift food items; (ii) flood-related supply disruptions across agricultural regions that may tighten near-term availability; (iii) the 12.7% contraction in agricultural output in Q3, which should continue to filter through food prices with a lag.

Third, the disinflation achieved over the past year has not yet anchored expectations across constituencies. The latest readings put 12-month ahead household expectations at 52.1% y/y, real-sector expectations at 32.9% y/y, and market participants at 22.2% y/y, each still well above the CBT's target. Without a decisive re-anchoring of expectations, disinflation becomes materially harder to sustain, in our view, as pricing heuristics and contract indexation keep backward-looking inflation alive, we underline.

Fourth, 2026 looks structurally harder from a base-effect perspective. In this regard, we do not expect the year to offer meaningful statistical tailwinds that mechanically compress y/y inflation. Having said that, the D-PPI's de facto anchoring in the 25%-27% y/y band over the last 12 months implies cost pressure in the production pipeline, which, in turn, might prolong pass-through to consumer prices and keeping prices sticky through second-round effects.

Last but not least, our estimates suggest sizeable under-the-mattress gold holdings. That stock functions as a discretionary liquidity backstop, supporting episodic consumption and investment demand when households choose to monetise it, thereby sustaining domestic demand and adding to price pressure at the margin.

Against this backdrop, how the CBT addresses the 16% target in the upcoming inflation report is, in our assessment, critical. The target appears quite unachievable. If policymakers raise the year-end target, inflation expectations will likely drift higher, narrowing real interest rates and making continued rate cuts indefensible. Holding the target unchanged, by contrast, risks widening the credibility gap. To conclude, the CBT walks a tightrope. It needs to navigate the path toward monetary easing while addressing persistent price pressures, where the primary challenge lies in adjusting policy without unsettling expectations or diminishing market confidence, we caution.

Summary of January rate-setting meeting

MPC rate decision in January

Quarterly Inflation Report for Q4

Monetary policy strategy for 2026

• CPI-REER increases by 3.2% m/m yet drops y/y
  
• CBT revises methodology, shifting base year to 2025 and updating weights

The CPI-based REER strengthened by 3.2% m/m in January, the CBT data showed. Even so, the CPI-deflated REER still posted a 2.5% y/y decline, implying, in our view, that cumulative relative price adjustment continued to lean toward improved external cost competitiveness. The D-PPI-deflated REER edged up by 1.0% m/m in January. However, it remained down by 3.7% y/y, signalling that producer-cost-based competitiveness continued to improve on an annual basis, despite the near-term firming in the index.

Data Download

Separately, the CBT updated the REER series following Turkstat's CPI base-year shift. The REER base year was reset to 2025, while country weights for 2021-2023 were re-estimated using reciprocal foreign trade and national income metrics and then applied to the CPI- and PPI-based REER series for periods after 2021. The CBT also revised the Iranian rial input by switching to the free-market exchange rate and, consistent with this change, back-cast the REER series to 2011.

Overall, we think, the methodological overhaul yielded a materially cleaner and more reliable competitiveness gauge. Having said that, the CPI-based REER remained below its long-run average, yet it still sat above the threshold level of 100, pointing to an overvalued reading despite the softer-than-average placement in historical terms. By contrast, the D-PPI-based REER stood above its historical mean but printed exactly at the threshold, suggesting valuation sat right on the borderline rather than in clearly overvalued territory.

INDEC changes: Caputo acknowledged differences with Marco Lavagna and said he wants a new household survey (La Nación)

Caputo said he disagreed with changing the inflation index and previewed what will happen with the January data (Infobae)

IMF view on the new CPI that is now shelved (La Nación)

US and Argentina sign critical minerals agreement at White House summit (La Nación)

[PRO house caucus leader] Ritondo visits [InteriorMin] Santilli and guarantees PRO backing for labor reform and juvenile justice bill (La Nación)

Labor reform delays Glacier Law, provinces play central role (Infobae)

Industry in crisis: vehicle production crumbles 30.1% y/y in January (Ámbito)

US Secretary of State says there is "no agreement or anything finalized" with Argentina on deporting immigrants (Clarin)

• LLA aims for Senate vote on Feb 11 despite lacking commitments from swing voters
• EconMin Caputo refuses to compromise on CIT cut proposal, swing voters seem to support other articles

The ruling Freedom Advances (LLA) wants the Senate floor voting on the government's labor and tax reform proposal on Feb 11, even though the party's negotiators have not been able to secure voting commitments from swing voters, according to reporting Wed. by Clarin. While swing voters have publicly supported the labor reform, negotiations reached a stalemate regarding the proposal to cut the corporate income tax rate by 3.0-3.5pps. Many of the swing voters LLA is targeting are influenced by provincial governors, who are concerned that the CIT cut would hurt revenues that have already declined sharply over the last two years.

Over the last week, negotiations focused on finding alternatives for the CIT discussion. Provincial governors proposed that the federal administration compensates them by putting a national tax under the revenue-sharing umbrella. Negotiators, who heard Economy Minister Luis Caputo argue that the CIT cut would not cause revenue problems because the full reform would lead to more formal jobs and stronger GDP growth, proposed to cut the CIT gradually, according to GDP growth performance. The possibility of removing the CIT articles was also floated as a possibility if it meant securing enough votes for the rest of the reform.

Clarin reported that all these alternatives were dismissed by Caputo and that the government wouldn't be making any big concessions to sway voters. Caputo insists that the reform will be beneficial for all and prefers to bet that swing voters will ultimately approve. Some of the lead negotiators are allegedly still pushing to convince Caputo to concede CIT reform if this allows them to gain approval commitments for the other articles.

• Weight of "electricity, gas, and other fuels" was set to rise from 3.0% to 5.9% in new CPI
• Electricity and natural gas prices expected to rise relative to rest of CPI basket this year

Hikes to natural gas and electricity tariffs that begin implementation in February are believed to be the main culprits for the government's interference with the statistical office to block its decision to update the CPI weights, according to reporting by Econojournal. In the new CPI, the weight of the category "electricity, gas, and other fuels" was set to rise to 5.9% from about 3.0%. This category is expected to be one of the main inflation drivers this year, as the government raises producer prices that were kept artificially low in 2025 due to it being an election year, continues with the gradual removal of subsidies, and accommodates a slightly weaker exchange rate.

The government has already announced that natural gas tariffs are rising 16.9% on average in February, which accounts for an increase in the price paid to producers, an increase to the price paid to distributors, past inflation, and changes to the subsidy scheme. The wholesale electricity price will rise 21%, which would normally raise power bills for consumers by 10%, but the implementation of the hike will be gradual for the 60% of users who still receive subsidies.

Brazil invited by Trump to join critical minerals trade bloc (CNN Brasil)

Renan Calheiros says he will request info from BCB about [Banco] Master after meeting with [BCB's] Galípolo (Terra)

Senate committee establishes working group to monitor irregularities at Banco Master (G1)

Haddad's nominee to BCB coordinated [Workers' Party] PT's proposal to change financial market rules (Gazeta do Povo)

Tebet says Haddad has no way of 'escaping his mission' in São Paulo election (O Globo)

Govt begins mapping replacement ministers ahead of term limits (Carta Capital)

Lula hosts Hugo Motta and house leaders for dinner in Brasília (Band)

Integration routes on continent can reduce trade costs (Agência Brasil)

• CNN Brasil says US invited Brazil to join its critical minerals trade group
• Critical minerals are likely to be a key bargaining issue in Brazil-US tariff talks

The Donald Trump administration has invited Brazil to join a trade group aimed at building partnerships in the critical minerals sector, according to CNN Brasil. The outlet said the US State Department confirmed the invitation. A meeting on the group was held Wed. with 54 other invited countries, and Japan and the EU signed minerals-related agreements with the US following the meeting. CNN added that representatives from the US Embassy in Brasília were present.

Overall, since the imposition of additional tariffs, we have viewed critical minerals as a potential bargaining chip for Brazil. Although no agreement has yet been reached on the issue, President Luiz Inácio Lula da Silva's government has been successful in advancing negotiations and partially reducing tariffs without committing to US demands, as occurred with other countries. Trump's invitation to Brazil is part of his initiative to reduce US dependence on China in the global critical minerals supply chain.

In our view, Brazil's decision will take several factors into account. The full removal of the additional tariffs imposed in August 2025 -- namely, the remaining 40% surcharge that still applies to around 20% of Brazilian exports to the US -- is likely to be Brazil's main demand in exchange for joining the group. In addition, Brazil is expected to condition its participation on guarantees of national sovereignty and domestic value added in order to avoid remaining merely a "commodity exporter," a recurring criticism by Lula when mentioning opportunities in the mineral industry. Another key consideration will be existing contracts with Chinese companies in Brazil's critical minerals sector, which are unlikely to be altered so as to avoid legal uncertainty and tensions with Brazil's main trading partner, China.

• Services PMI falls after three consecutive increases, but remains above 50-pt neutral mark
• Lower demand slows new order growth and prompts employment reduction

The S&P PMI Global Services Business Activity for Brazil fell 2.4pts m/m to 51.3pts in January from 53.7pts in December, according to data released Wed. by S&P Global. The decline halted a three-month streak of increases, but the indicator remained above the 50-pt neutral mark for the third consecutive month. Lower demand weighed on the growth pace of new orders, which slowed to the lowest level in three months and prompted the first decline in employment in five months, albeit a marginal one. The weaker activity also affected expectations as optimism fell to its lowest level in six months on concerns over public policies and this year's elections, as well as uncertainties related to geopolitical conflicts.

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Operating costs rose in January, driven by higher prices for agricultural goods, construction materials, food, fuel, stationery, electricity, and tires, whereas prices for lubricants and fertilizers fell. The input inflation rate rose to its lowest level in 20 months while selling prices increased at their slowest pace in seven months.

Overall, the services sector lost momentum in January but remained above the neutral mark, indicating expansion for the third consecutive month despite a still-tight monetary environment. The first decline in employment reinforces the BCB's view that the labor market has begun to show signs of deceleration, supporting the effectiveness of monetary tightening. Looking ahead, the services sector is likely to slow in 2026 as the monetary environment is expected to remain restrictive even with the beginning of the easing cycle.

• Sales fall in Jan after rising in Dec
• Sales fall sharp 39.0% m/m from 279,408 in Dec

Total automotive sales, excluding motorcycles, fell 0.4% y/y to 170,538 units in January, compared with an 8.5% rise in December, according to data released Tues. by the National Federation of Automotive Vehicle Distribution (Fenabrave). January had one fewer working day y/y. On a monthly basis, sales fell a sharp 39.0% m/m, reversing the 17.1% increase seen the month before.

Data Download

Passenger cars, which accounted for 73.4% of all sales in January (down from 75.4% in December), rose 1.4% y/y, and light commercial vehicle (LCV) sales grew 2.3%, both on their second consecutive increase. Truck sales fell for the 21st consecutive month, dropping 30.4% y/y, and bus sales fell 29.1%. In turn, on a monthly basis, all categories posted declines.

Overall, new car sales returned to a decline in January after a rise in December halted two consecutive monthly drops. While the decline was modest, Fenabrave noted the resilience of vehicle demand in Brazil despite the tight monetary environment. As the Selic is expected to start falling in March, vehicle sales could receive another boost alongside government programs such as the Sustainable Car Program, which reduces certain taxes on more environmentally friendly vehicles. However, the tight monetary environment, expected to last despite the easing cycle, is still expected to hinder the sector's expansion in 2026.

PEMEX slashes debt to 11-year low as govt eyes oil turnaround (Bloomberg)

PEMEX fuel production is up, hits 511 thousand barrels per day (El Financiero)

US Congress conditions all support to Mexico on the country's water deliveries (Reforma)

Sheinbaum says Mexico gives investors certainty; Ebrard highlights investment for USD 406bn in two thousand projects (Animal Político)

Sheinbaum and business leaders seek to boost the country's economic development (Milenio)

Sheinbaum says the critics of the electoral reform project will be surprised by the bill (El Financiero)

Sheinbaum says this year looks even better than the last one for Mexico (La Jornada)

Banxico will pause its easing cycle, resuming cuts until May, according to Citi's latest poll (El Economista)

Sheinbaum insists on calling the US to halt the traffic of weapons towards Mexico (La Jornada)

Adán Augusto anticipates Andrea Chávez will be MORENA's candidate for governor in Chihuahua (El Financiero)

Lilly Téllez claims Adán Augusto exchanged his resignation for Chávez nomination in Chihuahua (Político MX)

Banks' profits in Mexico grow 1.1% in 2025 and set a new record (El Economista)

• Experts hold their 2026 CPI inflation forecast at 4.00%, lift their 2027-end projection to 3.75%
• Still see CB cutting its policy rate by 50bps in 2026, with the first cut coming in May

The economy will be growing by 1.4% this year, according to the latest consensus forecast reached by analysts polled by Citi. This projection is up by 0.1pps from the forecast published a fortnight ago and 0.2pps from the mid-December projection. This improving trend is consistent with better-than-expected performance in Q4, which suggests economic growth might exceed expectations in early 2026. Still, we note growth expectations are only where they were through most of Aug-Nov of last year, showing this positive correction only offsets the negative revisions made in late 2025.

Despite stronger growth expectations, analysts upheld their year-end CPI inflation forecast at 4.00%. This is the third fortnight with the year-end forecast holding exactly at the upper end of the CB's year-end tolerance band. This, we insist, is a worrying contrast with the overoptimistic projection held by the CB, which continues to predict CPI inflation will slow to 3.00% by Q3.

The polled experts rose their 2027-end CPI inflation forecast to 3.75%. This revision isn't too worrying but shows the market does not see a clear path for CPI inflation to converge to the CB's 3.00% target. Indeed, despite this discrepancy, the market anticipates the CB will cut its policy rate by 50bps this year, with the first 25bps cut in May. We are not surprised on this either, in line with the dovish discourse held by the CB, clearly willing to swiftly resume its easing cycle despite lingering inflationary pressures. Furthermore, we warn it's not a given the CB will close its easing cycle after two cuts, making no commitment for it in its Monetary Program.

Click here for our comprehensive database of macro forecasts.

• Deceleration suggests a same-store contraction in real terms
• Poor performance is in part explained by a calendar effect

Large retailers' same-store sales rose by 1.2% y/y in December, in nominal terms, according to data released on Tuesday by the National Association of Self-service and Department Stores (ANTAD). The hike shows a 3.0pps m/m deceleration and the weakest result in Q4. The deceleration is in part due to a calendar effect, given December 2024 had one more Sunday than the same month in 2025.

Data Download

With this deceleration, same-store sales declined by 2.5% y/y, in real terms. However, we note it might be incorrect to look at all the consumer basket considered in the CPI, given inflation was pressured up in December by service prices, and down by energy and administered prices, neither of which affect ANTAD's prices.

ANTAD's total sales rose by 3.8% y/y, slowing m/m but maintaining relatively healthy performance, particularly in the context of an adverse calendar.

Overall, private demand showed resilience in 2025. This resilience was crucial to keep the economy out of a recession, in our view, considering weak investment and a fiscal consolidation. We expect further resilience in 2026, with private demand favored by a strong labor market and growing real wages, at a time of recovering consumer lending and healthy confidence. Indeed, we fully expect private demand to remain the economy's main motor this year, as the economy is expected to gain much momentum from a lousy performance in 2025.

• Next MPC meeting: February 5
• Current policy rate: 7.00%
• EmergingMarketWatch forecast: Hold

The CB is set to pause its easing cycle on Thursday, as anticipated in the latest sitting. However, we are confident this pause will be short-lived, considering the dovish position assumed by the bulk of the board in the December sitting.

Data Download

Most of the market anticipates the pause will not extend until H2. Indeed, 92% of domestic forecasters anticipate the CB will have resumed its easing cycle by Q2, according to Banxico's latest poll among analysts. The majority predicts this will be the next rate cut, with only 30% predicting a cut will come in Q1.

Considering Banxico's schedule, this means the pause will only last two or three sittings, with the CB holding the Monetary Policy Rate (MPR) in February, March and, possibly May. Indeed, we expect the CB to cut its policy rate in Q2 too, considering the dovish position of at least three board members, despite lingering inflationary pressures and loosely anchored mid-term expectations.

On Thursday, we'll be watching to see if the CB finally corrects its overoptimistic CPI inflation expectations. We expect it will, taking advantage of an already planned pause to the easing cycle to acknowledge CPI inflation will not meet its 3.00% target this year.

We recall the CB was clear in its Monetary Program anticipating it plans to cut the policy rate moving forward. On the timing, the CB said such easing will come once it sees no second order effects appear from the inflationary pressure expected in early 2026. This position is unsurprising in the sense that the market already expects 50bps easing this year.

The CB recognized inflationary pressures from tax hikes and tariff increases to begin the year. The CB says the tax increases on sugary drinks, tobacco and video games, along with the higher tariffs imposed on goods imported from countries without a free trade agreement, are to have a modest, transitory and limited impact on inflation. Banxico sees the full impact of the tax revision to wear off within the year, while the impact of higher tariffs will have a short-term effect.

It's notable to see the CB looking beyond the new two-digit increase to the minimum wage. This decision not to recognize its inflationary effect seems like a political calculation, in our view, trying to stand on the good side of President Claudia Sheinbaum.

Indeed, we do not expect an immediate increase in prices from higher tariffs, considering businesses had time to build up their inventories and given the currency appreciation should offset the tariff's pressure on consumer prices. Moreover, it's important to consider many goods needing the imported supplies are exported and might play a relatively modest role in the domestic consumption basket.

On the higher taxes, CPI inflation data already show pressure on tobacco prices. However, as Banxico predicted, these hikes are likely to be limited to the targeted items, considering there is no reason for contagion from these specific goods.

However, the minimum wage hike should have an inflationary effect that might have second order effects, in our view. Indeed, CB Deputy Governor Jonathan Heath had warned this much, noting the share of workers earning a minimum wage has increased sharply as the government has continuously increased it swiftly.

Furthermore, we believe the CB is showing its dovish stance by only worrying about new inflationary pressures rather than first recognizing worrying recent performance. Indeed, the CB's Monetary Program celebrates disinflation in 2025 but fails to acknowledge CPI inflation remains well above the CB's 3.00% target, with expectations only loosely anchored, with no analyst expecting an actual convergence on the foreseeable future.

Overall, we are confident the CB will hold its policy rate at 7.00% on Thursday. We expect the pause to be brief; we expect a rate cut in May or June, even as CPI inflation pressures persist and core inflation remains high. We continue to believe 2026 easing shouldn't exceed 50bps; however, the dovish position of the bulk of the board leaves the door open to a bit more easing, in our view, even if further easing could bring the policy rate into expansive territory.

• Passenger car sales have recovered due to improved FX liquidity, growing confidence
• Egypt has announced a series of international deals to localize auto production

The number of passenger cars sold rose by strong 6.7% m/m to 13.6k units in December following a weaker increase of 1.2% m/m in the preceding month, according to local newspapers citing data from the Automotive Information Council (AMIC). AMIC is an industry association, which only reports data submitted by its member car dealerships. This is highest volume of sales since March 2022 - the second and the third largest ones were also recorded in 2025 - and continues the market's recovery streak, which has been building steadily since early 2025. In y/y terms, passenger car sales rose by sharp 28% following a 50% jump in the preceding month. Truck sales also rose robustly on the month (up 9% m/m), while bus sales fell by 15% m/m. Consequntly, total auto sales rose by strong 6.0% m/m quickening from a 3.1% m/m increase in the previous month.

Data Download

The passenger car sales have been on a path of strong recovery since mid-2024 as FX liquidity and consumer confidence improved and FX uncertainty eased following a major currency reform. Further, the CBE has reportedly cleared most of the FX backlogs that had dragged on imports in recent years. Egypt has also over the past year announced a series of international deals to localize the production of automobiles, including e-vehicles. Meanwhile, the local press reports of a sustained drop in car prices on the domestic market. Local analysts attribute the sharp drop to a correction that follows years of overpricing. The recent pound appreciation should have also driven the prices of newly imported cars down, forcing car dealers to further cut prices across their inventories.

• Sisi and Edrogan discuss trade, investment, and regional issues in Cairo on Wednesday

Egypt and Turkey signed several MoUs to boost cooperation across defense, investment, trade, and agriculture during President Erdogan's visit in Cairo on Wednesday. The two countries also reiterated their target to boost annual trade between them to USD 15bn by 2028, up from USD 9bn. Further, the two countries will seek to expand air and maritime links, including via a direct air freight route from Alexandria and Bursa. The talks also covered key regional issues of mutual concern, including developments in the Gaza Strip and the wider Middle East, as well as the situations in Sudan, Somalia and the Horn of Africa, the spokesman added.

Under the MoUs, Turkey will open industrial zones in Borg El Arab, Al Alamein, and Gargoub, and possibly logistics centres.

Egypt, Türkiye share converging positions on regional issues: El-Sisi at presser with Erdoğan (Ahram)

Egypt seeks deeper economic ties with Turkey: El-Sisi to businessmen (Ahram)

Egypt, Türkiye set USD 15bn trade target in joint declaration (Ahram)

Egypt vehicle sales jump 23% above 2025 average in December: AMIC (Ahram)

EBRD invested record EUR 1.3bn in Egypt across 26 projects in 2025 (Ahram)

IFC to invest USD 1.2bn in Egypt during FY2026 (Zawya)

Egypt-Turkey trade exchange reaches USD 6.8bn in 2025: CAPMAS (Zawya)

World Bank Funds 49 Projects in Egypt worth USD 346mn Over Four Years (Sada Elbalad)

Egypt sees USD 12bn in annual foreign investment: El-Khatib (Egypt Today)

Egypt to issue USD 2bn in international bonds during FY 2025/26 (Egypt Business)

Question:

How much do UAE deposits account for as a share of total foreign-currency reserves?

The question was asked in relation to the following story: Net FX reserves rise 2.5% m/m to USD 51.5bn as of end-December

Answer:

The Arab countries (mainly Saudi Arabia, Kuwait, and UAE) have extended two types of deposits to Egypt's central bank - medium-term deposits, which are transparent, with clear maturity dates and interest payment schedules - and short-term deposits, which are more opaque. Both types of deposits are routinely rolled over. The UAE converted its USD 11bn medium-term deposit into a direct investment in the landmark Ras El Hikma deal from Feb 2024, and based on CBE's figures in its external sector reports, we estimate the UAE had a USD 5bn short-term deposit at the CBE as of June 2025. This figure is also mentioned in various news reports, so it seems credible. USD 5bn would account for about 10% of CBE's foreign reserves, and we think the deposit has remained at around this level.

Question:

Is the gold held in reserve (approximately USD 18bn) fully available to the CBE, or is any portion of it used as collateral?

The question was asked in relation to the following story: CPI inflation holds steady at 12.3% y/y in December, better than expected

Answer:

The gold reserves should be fully available to the central bank (CBE), because they are listed under Net International Reserves (NIR). According to the IMF's definition, Egypt's NIR are defined as the difference between gross reserve assets and foreign liabilities, and gross reserve assets exclude assets that are frozen, pledged, used as collateral, or otherwise encumbered. More importantly, the size of CBE's NIR under IMF's definition is pretty close to the value of NIR reported by the CBE, which suggests both institutions use the same definition, hence the reported gold reserves are not used as collateral. On the other hand, we could not find an official source that would suggest they are (or part of them is) used as collateral, but this is not always readily available information. To sum it up, we are confident the gold reserves are not used as collateral, but we are not 100% sure.

You can find more information about the net and gross FX reserves and the contingent external liabilities in CBE's latest monthly report (here), page 65.

• Talks with multiple potential investors in advanced stages for 4 refineries
• One Chinese firm plans to inspect a refinery soon
• NNPC is not selling refineries but is open to ceding partial equity

The Nigerian National Petroleum Corporation Limited (NNPC) is in discussions with a Chinese company to bring in experienced operators for one of its state-owned refineries, according to comments from chief executive officer Bayo Ojulari on Wednesday (Feb 4). The agency is aiming to revive the country's four refineries which have suffered years of losses and underperformance. An internal review conducted after Ojulari assumed his role last April revealed the refineries were operating at high costs, relying heavily on contractors and processing low volumes of crude. While the NNPC is not selling the refineries, it plans to cede a portion of equity to partners to allow the plants to self-finance their operations.

The NNPC board approved a strategy to replace contractors with equity partners who have proven refinery expertise. According to Ojulari, talks with several interested parties are in advanced stages. He confirmed that one potential investor, a Chinese firm operating one of the largest petrochemical plants in China, is set to inspect a refinery soon.

Nigeria has four refineries (two in Port Harcourt and one each in Warri and Kaduna) with a combined installed capacity of 445,000 barrels per day (bpd). The Port Harcourt refineries account for 210,000 bpd, while Kaduna and Warri have capacities of 110,000 bpd and 125,000 bpd respectively. Ojulari said the refineries were not commercially viable in their current state, operating at only 50-55% capacity despite steady crude supplies.

Kwara massacre: FG faces heat as 100 feared dead (Punch)

NNPC targets foreign partners as Dangote provides lifeline (Punch)

GenCos dispute power subsidy claims as govt targets FAAC (Punch)

Discos lost N72.86bn to unbilled power in November - Report (Punch)

Nigeria saved N6tn through downstream oil reforms - FG (Punch)

Setback for Electoral Reforms: Senate Rejects Mandatory Real-time Results Upload (ThisDay)

FG: US Troops in Nigeria Restricted to Training, Intelligence Support (ThisDay)

IMF Tips Nigeria as Africa's Third-largest Economy Ahead of Algeria (ThisDay)

Dangote Refinery Denies Petrol Import Claims, Says Allegations False, Misleading (ThisDay)

NNPC shuts state-owned refineries after assessments show value leakage - Ojulari (Nairametrics)

FG discontinues road tax credits, says projects must follow appropriation (Nairametrics)

• Conflicting claims point to Boko Haram or Islamic State-linked Lakurawa
• Violence coincides with confirmation of small US troop deployment

On Wednesday (Feb 4), more than 160 people were killed in coordinated attacks on the villages of Woro and Nuku in Kwara state, in western Nigeria. This marks the country's deadliest assault this year. Gunmen opened fire on villagers and set homes and shops ablaze. Reports indicate that several people were also abducted. A local member of parliament blamed the Lakurawa, an armed group linked to Islamic State, but no group has claimed responsibility. President Bola Tinubu attributed the attack to Boko Haram. According to Amnesty International, attackers had issued threats to the communities for months before the assault.

In a separate incident in the northwestern state of Katsina, gunmen killed at least 21 people in a door-to-door attack that broke a local peace pact between residents and armed groups. Additional assaults in northeastern Nigeria last week left at least 36 people dead. The attacks coincided with confirmation from Nigeria's defence minister that a small team of US troops is in the country to provide intelligence and training support at Nigeria's request. Recently, the Nigerian military said it has intensified operations against armed groups in Kwara and neighbouring areas, claiming successes against what it calls terrorist elements.

• Talks gathered momentum in 2022
• Agreement with GCC will provide a strategic and economic fillip
• FTAs already exist with Oman and UAE

India has formally signed the terms of reference to relaunch free trade agreement negotiations with the Gulf Cooperation Council, reviving a process that has remained dormant for more than a decade despite the strategic depth of the relationship. The signing clears the way for structured talks with the six-member GCC bloc (Saudi Arabia, the United Arab Emirates, Qatar, Kuwait, Oman and Bahrain) nearly twenty years after the two sides first agreed on a framework for a comprehensive trade pact in 2004. While initial negotiations progressed through two rounds in 2006 and 2008, talks were put on hold after the GCC suspended trade negotiations globally in 2011. Momentum returned only in recent years, beginning with the GCC Secretary General's visit to India in November 2022 and the exchange of revised negotiating parameters in 2023.

Commerce and Industry Minister Piyush Goyal described the agreement on the terms of reference as a strategic reset, framing the prospective FTA as both an economic and geopolitical lever. He said deeper trade integration with the GCC would support higher investment flows, job creation across both regions, and reinforce food and energy security at a time of increasing global fragmentation. The proposed pact, he added, would also help India further diversify its energy sources while signalling the strength of its long-standing ties with the Gulf.

The terms of reference will define the scope, sequencing and rulebook for negotiations, setting the foundation for discussions on goods, services, investment and broader economic cooperation. The move follows India's recent push to accelerate trade diplomacy across multiple regions as global supply chains are reconfigured and protectionist pressures intensify.

We remind that economic linkages between India and the GCC are already substantial. Bilateral goods trade reached USD 178.56bn in FY25, accounting for over 15% of India's global trade. India exported USD 56.87bn worth of goods to the bloc, while imports, dominated by crude oil and natural gas, stood at USD 121.66bn. Saudi Arabia ranks as India's second-largest GCC trading partner after the UAE, which also plays a critical role in India's external balances through remittances. According to the latest Economic Survey, the UAE contributes nearly a fifth of India's inward remittances. Beyond energy, India's exports to the GCC span gems and jewellery, metals, electrical machinery, iron and steel, and chemicals.

India has already concluded trade agreements with two GCC members, the UAE and Oman, and is in parallel negotiations with Qatar. A bloc-level FTA would therefore represent a step change, consolidating bilateral arrangements into a broader regional framework and anchoring India more firmly in one of its most critical economic and strategic neighbourhoods.

Sensex slips over 300 pts, Nifty below 25,700 (Economic Times)

India eyes Gulf trade deal beyond UAE and Oman (Economic Times)

RBI MPC 2026: Central bank to keep repo rate unchanged amid currency volatility and bond yield pressures, as per SBI report (Economic Times)

Strong demand lifts services PMI in Jan (Economic Times)

India told Washington it wouldn't be bullied as trade talks resumed (Business Standard)

Headwinds may be turning into tailwinds for foreign inflows: FM Sitharaman (Business Standard)

"New Delhi Is Free": Moscow On India Stopping Russia Oil Trade Under US Deal (www.ndtv.com)

UK aviation regulator seeks explanation from Air India over the Boeing fuel switch issue (Times of India)

RBI likely to stay on hold in February as trade deal improves macro comfort (CNBC TV18)

Parliament Budget Session Day 7 LIVE: Rijiju slams Opposition for disturbing Rajya Sabha (The Hindu)

• Size of swap agreement maintained at IDR 105tn
• Two central banks to also launch cross-border QR code-based payment system

South Korea and Indonesia will extend their currency swap agreement for five years until 2031, while maintaining its size at KRW 10.7tn and IDR 105tn. The agreement was first signed in 2014, after which it was extended on maturity in 2017, 2020 and 2023. Indonesia has currency swaps currently with the PBoC, MAS, RBA, BOJ and BOK.

BOK said that the currency swap agreement will "promote mutual trade and strengthen financial cooperation," while "swap funds will be used to stably settle import and export payments even during times of high volatility in the international financial market, thereby contributing to promoting trade and financial stability in the region."

It should be noted that BOK and Bank Indonesia also agreed to launch a cross-border QR code-based payment system in April. The QR code payment system will allow travellers moving between South Korea and Indonesia to make payments without exchanging currencies. The two banks have worked to establish a local currency transaction (LCT) framework following the signing of an MOU in July 2024.

• Investment, household consumption boosted GDP growth in Q4
• Financial and insurance services, wholesale and retail trade contributed on supply side
• GDP growth accelerated to 5.11% in 2025, up from 5.03% in 2024

GDP growth accelerated to 5.39% y/y in Q4 from 5.04% y/y in Q3, according to BPS data. This was the highest growth rate since Q3 2022. In quarterly terms, the GDP rose by 0.86% q/q, slowing from 1.42% q/q expansion in Q3. As a result, the annual growth rate reached 5.11% oil 2025, up from 5.03% in 2024.

Data Download

On the demand side, the strong growth in Q4 came on the back of investment and household consumption. GFCF growth picked up to 6.12% y/y, up from 5.04% y/y in Q3, driven up by higher investment in building and machinery and equipment. Household consumption growth also accelerated to 5.11% y/y in Q4, the strongest since Q3 2023, mainly on the back of food consumption and transport.

In annual terms, household consumption remains the main GDP growth driver, accounting for about 2.7pps of the annual GDP growth rate in Q4. Investment claw second with about 2.0pps contribution, followed by government spending. We should note that net exports did not contribute significantly to GDP growth in Q4 as export growth lost significant pace, while imports picked up, in line with the rising household consumption and investment.

On the supply side, financial and insurance activities rose by 7.92% y/y, up from 0.77% y/y growth in Q3, emerging as the main factor behind the acceleration of GDP growth. In addition, wholesale and retail trade output also rose at a slightly higher pace. All other sectors saw similar or weaker expansion during the quarter.

In annual terms, the manufacturing sector remains the main GDP growth driver in Q4, contributing about 1.1pps to the GDP growth rate. Wholesale and retail trade came second with 0.8pps contribution, followed by information and communication with 0.6pps. Only the mining and utility sectors showed some minor output contraction during the quarter.

Overall, GDP growth clearly beat expectations in Q4 as investment growth spurred overall economic growth. The government's stimulus packages also succeeded in boosting private consumption slightly.

• Labour force participation rate rises to 70.95%
• We expect to see only marginal gains in 2026 as economy is close to full employment

The LFS unemployment rate fell to 4.74% in November, down from 4.85% in August, according to an extraordinary survey by the BPS. We remind that up to now, the BPS published LFS survey results only for February and August every year. This is the lowest unemployment rate since the current LFS surveys started in 2010.

Data Download

The labour force participation rate improved to 70.95%, up from 70.59% in August, despite the growing labour force. As a result, job creation outpaced labour force growth. The employed continued to increase, while the unemployed fell, suggesting the improvement is not on the back of dissatisfied workers leaving the labour force.

Looking forward, we expect to see only marginal gains in unemployment this year, given that the economy seems close to full employment. The LFS unemployment rate has been fluctuating in the 4.7-4.8% range since Feb 2024.

Danantara CEO Reveals Prabowo's Push for Global-Standard Stock Exchange (Tempo)

Indonesia, Australia Shift Toward Stronger Investment Ties (Tempo)

Pertamina Merges Three Subsidiaries into Downstream Subholding (Tempo)

Australia in Talks for Indonesia's $5 Billion Waste-to-Energy Projects (Jakarta Globe)

Former Foreign Ministers Back Gaza Peace Board Role After Prabowo Briefing (Jakarta Globe)

Debate over legislative threshold reignites ahead of election law revision (The Jakarta Post)

Indonesia's F-15 fighter jet deal falls through after years of talks (The Jakarta Post)

Indonesia to revive textile industry with $6B investment in midstream (Antara News)

State Secretary: No Reshuffle Plans to Replace or Shift Ministers Yet News (Kompas)

Danantara CEO Sets 2026 Target: Streamlining State-Owned Enterprises, Who Will Be Eliminated? (Koran Jakarta)

BPS: Indonesia's Economy Grows 5.11 Percent in 2025 (Media Indonesia)