• Exchange rate fluctuations and change in reserve composition likely supported the increase
• The CNB has been shifting away from USD-denominated assets to EUR and gold in Q2 2025
• Official reserves covered 9.1 months of imports and reached 42% of GDP at end-July
• The CNB sold EUR 292mn in the domestic fx market in June; cumulative fx sales reached EUR 1.8bn in H1

The official reserves of the CNB rose by EUR 2.7bn (1.9% m/m) in July, adding up to EUR 140.9bn at the end of the month, according to data from the central bank. There was likely a noticeable influence from exchange rate fluctuations, particularly in relation to the EUR/USD rate and changes to the composition of official reserves. The share of USD-denominated assets in the CNB's official reserves decreased from 30% in Q1 to 28.6% in Q2, according to the quarterly information on reserves. The bigger part has been due to more gold purchases, as gold reached a weight of 4.2% in official reserves in Q2, up from 3.8% in Q1, and 2.3% a year earlier. Meanwhile, the weight of EUR-denominated assets increased to 50% in Q2 from 49.3% in Q1. Given that the US dollar has lost about 9% against the euro since the beginning of 2025, mostly in reaction to US tariffs, this has boosted the value of CNB reserves in EUR.

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In that regard, the reserve decline in June was downgraded as well, from EUR 2.7bn reported initially to EUR 1.98bn. Finally, official reserves rose by EUR 2.8bn (2.1% y/y) in year-on-year terms, with the bulk of the increase coming in July. Official reserves covered 9.1 months of imports as of end-July, and added up to 42% of GDP.

Meanwhile, the CNB sold EUR 292mn of reserves in the domestic fx market in June, according to fx trading data. The sold amount was just under the monthly cap of the CNB's programme on selling earnings from reserve management, whose upper limit is EUR 300mn. In that regard, return on reserve management improved in 4q-rolling terms, reaching 7.73% at end-Q2, up from 5.24% at end-Q1. The biggest improvement came from the investment tranche, where return reached as much as 8.92% at end-Q2, up from 5.66% a quarter earlier. Looking back at fx operations, the CNB sold EUR 1.8bn in H1 2025, sticking close to its monthly sales cap. Over the past 12 months, fx sales reached EUR 3.4bn, but it did not lead to a decline in headline reserves, as they still rose by EUR 1.2bn (0.9% y/y) over the period.

• IT & communication, professional services, real estate, and tourism all report a weaker performance
• Yet, IT & communication and professional services still saw decent growth rates
• Accommodation and food services mitigated the slowdown in headline growth
• We don't see softer service sales growth as indicative of a noticeable deceleration of service price inflation yet

Sales of non-financial services eased their growth to 2.3% y/y in Q2 2025 from 3.1% y/y in Q1 2025, according to figures from the statistical office. Sales increased modestly in seasonally adjusted terms, up by 0.2% q/q, which was their third consecutive quarter of increase.

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The deceleration was due to a relatively broad array of sectors, as performance in IT & communication, real estate, professional services, and support services deteriorated. As far as support services are concerned, the main source of poor performance was tourism, where sales fell by 0.4% y/y in Q2, their first decline since Q1 2021, when pandemic-related travel restrictions were still in place. Regarding the rest, performance in IT and professional services was still solid, they just reported weaker growth. This could foreshadow a weakening demand, given disruptions in global trade and expectations of a weaker economic activity in H2 2025.

Accommodation and food services mitigated the development to some extent, as their sales rose by 2.7% y/y in Q2, reversing from a 1.3% y/y drop in Q1. Food services saw a slightly stronger improvement, possibly due to some moderation of restaurant service prices recently. Whatever the reason, this was not enough to make up for the downward pressure seen from other sectors, which pushed headline growth downwards.

At this point, we don't see the softer service sales growth as indicative of a noticeable deceleration of service price inflation. The sectors that are being brought to a standstill are mostly real estate and tourism, and the reason for that is not so much price levels, but other factors. The steady increase in property prices is unsurprisingly pushing down real estate sales, while tourism sales could have performed weakly simply because growth was much stronger earlier in the year, and there are fewer last-minute sales.

• Markets expected a 5% y/y increase
• The May print was revised downwards, from 5.3% y/y to 4.6% y/y
• Online and fuel sales worsened, while sales of foods, household equipment, and apparel were on the rise
• Even if the June print is revised downwards, it would still indicate stronger household spending in Q2

Retail sales, excluding vehicles, inched down their growth to 4.5% y/y (wda) in June from 4.6% y/y in May, according to figures from the statistical office. The July print was below expectations, given that markets anticipated retail sales growth at 5% y/y. Meanwhile, the May print was revised downwards yet again, as it was originally reported at 5.3% y/y. Retail sales still rose by 0.3% m/m (sa) in June, but it was a marginal increase.

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Retail performance did not send as clear signals as in May, as there were opposing developments. On one hand, downward pressure came primarily from online sales, whose growth weakened from 19.1% y/y in May to 10.3% y/y in June. It appears that the spike in May was a one-off occurrence, though we cannot directly tie to any major holidays, as Easter was in April. The other downward push was from fuel sales, which reflected higher prices for a time, provoked by the Israel-Iran war. Yet, oil prices have again normalised, so we may see some recovery in July.

Meanwhile, food sales improved, both in specialised and non-specialised stores, and in both cases there was a reversal from a decline in May to an increase in June. This may have been through imported foods, which should have been a bit cheaper, given a stronger CZK. There was also an improvement in sales of non-electronic household equipment, and clothing. The latter could reflect growing imports from China, whose apparel retailers have been trying to take over a larger market share. As far as household equipment sales are concerned, their prices are still rising by a relatively modest pace. With inflation expectations of households being currently on the rise, the boost in purchases could indicate concerns that price levels may increase.

In any case, the big picture indicates that retail sales rose by 4.9% y/y in Q2, faster than their 3.4% y/y increase in Q1. This could be indicative of a stronger household consumption, though given the relatively big revisions recently, we would hold a final judgment before the July retail release. Still, it appears that household spending strengthened in Q2, at least to some extent, which would also imply that nominal wages kept rising at a robust rate.

All this will be just another argument in favour of holding interest rates stable at the MPC meeting later on Thursday (Aug 7).

• Decroix attended a STAN leadership meeting and said she would say more at a press event on Aug 8
• Yet, she did not commit to making the audit public, which puts the ball back in STAN's court
• We doubt STAN will leave the government now, but its relationship with the ODS will likely turn sour
• All this will only provide ANO with more opportunities to solidify its victory at the coming general election

STAN, a member of the ruling coalition, expects that justice minister Eva Decroix (ODS) should make public the audit about the bitcoin donation to the justice ministry by the end of August, STAN's leadership said after a meeting on Wednesday (Aug 6). The party has been unhappy that Decroix decided to keep the audit's conclusions from the public. There was a short note that the justice ministry should not have accepted a bitcoin donation from a convicted drug dealer, but nothing further. Decroix also attended STAN's leadership meeting, effectively summoned to provide explanations. Yet, her reaction was that she would hold a press conference on Friday (Aug 8) to provide her reasons. Importantly, she did not promise to make the contents of the audit public, which means that the ball will be back in STAN's court.

As we expected, STAN was more bark than bite, and we doubt that threats to leave the government will ever materialise. The most we expect STAN to do is withdraw their deputy justice minister, Karel Dvorak, who has already been targeted by Decroix, as she tried to share the blame between him and her predecessor, Pavel Blazek (ODS). STAN clearly doesn't want to be labelled as being responsible for that scandal, as it appears that it was mostly the doing of Blazek, with the silent blessing of other senior ODS officials, like FinMin Zbynek Stanjura. Yet, leaving the government now could prove counterproductive, and it would raise the question of why STAN did not leave when the scandal first surfaced at the end of May.

In any case, we expect that there will be a much colder atmosphere later this month, when the cabinet officially reassembles from its summer break. We also expect that the election campaign will see some sparks fly between STAN and the ODS, the leading party in the Spolu coalition. Yet, this will unlikely prevent future co-operation, though it might not really, as ANO still stands the strongest odds of being able to form a government. In fact, friction between STAN and the ODS, and by extension, Spolu, could make ANO's job in the campaign easier, and we expect ANO will do its best to exploit the situation.

• It appears mortgage rates have bottomed out in the middle of 2025
• Average mortgage payments are still lower by 2-5% y/y, but the survey uses a fixed mortgage value that is no longer relevant
• We estimate that average payments are currently around 48-50.4% of the average wage, and 55-59% of the median one, which is high
• The survey implies banks don't expect a major construction boom and see housing prices rising further

New mortgage offer rates continued to increase slightly in August, adding between 2pps and 3pps in month-on-month terms, according to the latest Hypoindex survey from SwissLife. While the increase in mortgage rates is not considerable, it implies that mortgage offer rates may have bottomed out at the middle of 2025. Lending rates are still visibly lower in year-on-year terms, the difference being around 45-50bps for mortgage loans with a fixed interest rate period of 1-3 years, and about 20-30bps for mortgages where the fixation period is 5-10 years. CNB data shows that after the CNB tightened monetary policy, the prevalent fixation period has shifted from 5-6 to 3 years, which is why that category is the most indicative of the current market state. Mortgages with a 3-year fixation period still have the lowest lending rates, at 4.67% in August (up 2bps m/m, down 45bps y/y), but they appear to have bottomed out as well.

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The average monthly mortgage payment has continued to decline in year-on-year terms, falling between 2% y/y and 5% y/y, depending on the fixation period. In the case of 3-year fixation mortgages, the average monthly payment was lower by 4.4% y/y. We remind that the indicator is a bit misleading, as the survey uses a standardised mortgage with a value of CZK 3.5mn and a repayment period of 25 years. While we have no objections to the repayment period picked, average mortgage values have now exceeded CZK 4mn slightly, so the absolute value of the mortgage payment is underestimated in the Hypoindex survey. Using a CZK 3.5mn mortgage value, mortgage payments vary between 41% and 44% of the average wage, and between 48% and 52% of the median wage. With a CZK 4mn value, payments are between 48% and 50.4% of the average wage, and between 55% and 59% of the median one, which is more realistic, in our opinion.

In any case, it appears that the mortgage lending market is now turning around, given the hawkish stance of the CNB and upside risks related to housing prices. While there have been some signs of a construction boom, with building construction rising by about 7% y/y in H1 2025, we are not that convinced that it will be that impactful. At this point, supply shortages persist, and judging from rent levels in Q2 2025, it appears that many new projects are high-end ones, which doesn't help with property prices. Thus, even if supply increases, it may not be enough to ease current shortages and thus push down prices quickly enough. As mortgage lending rates appear to be bottoming out, we would argue that banks do not expect a massive surge in housing supply, either. All this will still pile up pressure on core inflation through imputed rentals, and provide additional arguments for the CNB's current hawkish stance.

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• Farsky is unhappy that the probe about the bitcoin donation scandal has not been made public
• He reminded that STAN had backed the ODS on the condition that all details around the donation will be revealed
• We doubt STAN will leave the government, so withdrawing their deputy justice minister appears more likely
• It is a bit late for them to pick the nuclear option, as it could easily backfire

STAN could withdraw its deputy justice minister, Karel Dvorak, or even leave the government, Jan Farsky, first STAN vice president, told local media on Wednesday (Aug 6). The reason is the lack of enough clarity about the bitcoin donation to the justice ministry, which provoked the resignation of Pavel Blazek (ODS) as justice minister. STAN's reaction was provoked by the unwillingness of the new justice minister, Eva Decroix, to make the probe about the donation public. Decroix is yet to meet STAN's leadership, which has scheduled an extraordinary meeting on Wednesday evening.

Farsky made it clear that STAN expects much more than what has been provided thus far. He sees three possible outcomes of today's leadership meeting: Decroix provides a satisfactory explanation why the probe has not been made public; STAN withdraws Dvorak as deputy justice minister; or STAN leaves the government altogether. Farsky furthered that the justice ministry had a heavy reputational problem currently, which could reflect on the ODS as well. He believes that it is in the best interest of the ruling coalition that as much light on the case is shed. He also mentioned that STAN had backed the ODS when the scandal first surfaced on the condition that all details about it will be eventually made public.

Our suspicion is that Decroix most likely doesn't want to put Blazek into a negative light, which is why the findings of the probe have remained confidential. Thus far, neither Decroix nor PM Petr Fiala, the ODS leader, have mentioned the possibility that Blazek could face charges because of the donation. The best-case scenario for the ODS is if Blazek simply had a lapse of judgment. Yet, keeping the probe's findings under wraps doesn't imply that is the case. In any case, this brings back the attention to the scandal, which Spolu appeared to have put behind its back relatively unscathed.

As far as STAN is concerned, we doubt the party will pick the nuclear option, even though some senior members may feel it would be the best option. There is simply too little time until the general election on Oct 3-4, and it will only disrupt the functioning of the government, which may backfire, as far as STAN is concerned. Besides, we expect that PM Fiala will interfere if things really go sour. If STAN were seeking to distance themselves from the ODS, they should have left the government back in late May when the scandal broke out. The more likely option is to withdraw their deputy justice minister and condemn Decroix's actions, provided she doesn't provide a reasonable argument why the probe has not been made public. Thus, the government is likely safe for now, though we expect that the election campaign will be far less friendly between Spolu and STAN than it could be expected earlier this year.

• ANO leads Spolu by 13pps and is almost at 35%
• The SPD and STAN are competing for third place, the Pirates and Stacilo! both clear the 5% threshold
• No other party is close, so this is likely to be the next parliament's make-up

ANO, the leading opposition party, retained a vast lead in July, being 13pps ahead of Spolu, the backbone of the ruling coalition, according to the latest opinion poll of Ipsos, carried out between Jul 28 and Aug 2. ANO polled at 34.9% (down 0.2pps m/m), which makes the result an outlier, as the party has been polling around 31-32% in other recent polls. Meanwhile, Spolu was firmly second at 21.9% (up 0.5pps m/m), which is in line with other recent polling. In any case, it doesn't matter that much whether ANO leads by 10pps or 13pps, as it is still a gap that cannot be narrowed easily.

The SPD climbed to third place, at 11.4% (up 0.9pps m/m), while STAN remained fourth at 10% (down 0.8pps m/m). We attribute this mostly to respondents being not as active, given that neither party was too active that month. Still, it appears that the SPD has had more events, which has drawn some attention. The Pirates got a boost after their alliance with the Greens was announced in June, now polling at 8.6% (up 1.9pps m/m), which is more or less in line with what the Greens were expected to bring. Stacilo!, the leftist coalition that now features both the KSCM and SOCDEM, is polling at 6.3% (up 0.6pps m/m), which makes its entry in the next parliament almost completely guaranteed. We are not certain whether Stacilo!'s results incorporates all potential SOCDEM votes, so we may see a better performance in August.

No other party stands a chance to clear the 5% electoral threshold, as the Motorists come in at 3.9% (down 0.6pps m/m). While the Motorists may be underestimated in traditional polling, as they are active mostly on social media, their current position may be too far to catch up. The biggest question now is whether ANO will have enough seats to form a majority only with Stacilo!, which would be a repeat of the coalition that governed in 2018-2021, as the KSCM provided absolute majority at the time, even if not part of government. If that is not enough, ANO would need to seek support from the SPD, a nationalist populist party, which will likely not come cheap.

• Next MPC meeting: Aug 7, 2025
• Current policy rate: 3.50%
• EmergingMarketWatch forecast: hold

Rationale: The CNB expectedly turned more hawkish at the MPC meeting in June, and the vote to keep the policy rate unchanged was unanimous. Yet, the CNB's tone did not take a dramatic turn, and the end of the monetary easing cycle was not announced. We never expected that to happen, given the present level of uncertainty, so there was no real surprise. Strong domestic inflation pressure was singled out as a factor influencing the decision, with no real change in listed risks to the inflation outlook. There was a brief note about additional uncertainty stemming from the situation in Ukraine and the Middle East, but it did not go further.

Despite the relatively modest shift in tone in the post-meeting message, we believe the remarks of CNB governor Ales Michl at the post-meeting press conference were more revealing. In a nutshell, he said that domestic inflation pressure had increased, and that core inflation would remain elevated in the forecasting horizon. We believe this means that as long as inflation pressure remains high, we can forget about any more rate cuts. Michl did not rule out another cut entirely, and said the CNB will react to any changes in the inflation outlook. Yet, the implication here is that inflation will likely remain elevated for some time, given how the housing and labour markets have developed. Later on, he mentioned that he would like headline inflation to be slightly below 2%, to guarantee that the inflation target will be met in the long term. Jakub Seidler also remarked that inflation would likely ease in H2 2025, but he still anticipates strong pressure on core inflation through the labour market.

The debate at the MPC meeting in June was more informative, as it revealed that divisions on the board are currently along a hawkish and less hawkish line. The less hawkish-minded members, among them Jan Frait, Karina Kubelkova, and Jan Prochazka, do not rule out another rate cut in 2025. However, their position is based entirely on the assumption of a sharp downturn in economic activity, as a result of global trade disruptions. If that doesn't materialise, and inflation doesn't ease, neither of them is willing to push for more rate cuts. Thus, our suspicions that the bar for the next rate cut has been raised appear to be accurate. Even if there may be board members who would see the neutral policy rate a bit lower than the current 3.50%, they will act only when inflation shows permanent deceleration, and particularly core inflation.

Speaking of inflation, it has continued to accelerate, reaching 2.9% y/y in June, and then eased slightly to 2.7% y/y in July, according to the latest flash estimate. Core inflation strengthened as well, reaching 3% y/y in June, and we estimate it eased modestly to 2.9% y/y in July. Core inflation is now expected to remain elevated throughout the entire monetary policy horizon, according to a short update to the inflation forecast by CNB staff. Property prices have continued to rise, exerting additional pressure on headline inflation through imputed rent. We may also expect a modest uptick to household equipment prices later in 2025, which appear to be closely correlated to the dynamics of imputed rentals (our analysis shows the correlation is the strongest with a 5-month lag).

Communication after the MPC meeting has remained exclusively hawkish, though remarks were made mostly from board members that we qualify as belonging to the more hawkish group. Namely, Eva Zamrazilova and Jakub Seidler both ruled out any rate cuts in 2025, and Zamrazilova went as far as declaring that the current monetary easing cycle is over. Both expect economic activity to remain strong, even when accounting for the latest US-EU trade deal, though we have some reservations about that assessment. In any case, they both believe that inflation pressure will remain skewed to the upside, so there are no conditions for further monetary easing.

Thus, we remain confident that we will see another pause in the monetary easing cycle in August, even with a new staff forecast coming up, though it will likely be less benign than before. While a stronger CZK will dampen any potential external inflation pressure, there is no easing of domestic price growth for now. The fact that core inflation has become the main inflation driver will deter the CNB from acting quickly, which is why we don't believe a rate cut will be seen soon. We still do not rule out a cut in Q4 2025 entirely, but it will be fully contingent on inflation developments, and we assess the odds for such a scenario as low. If there is no meaningful easing in core inflation by Q4 2025, then any further rate cuts will likely take place in 2026. In any case, we doubt the policy rate will end 2025 at a level lower than 3.25%, even if inflation starts easing later this year.

Where we differ from the hawkish faction on the CNB board is their assessment about economic activity. We believe there has been a lot more preparation for less favourable global trade conditions, so the strong increase in activity in H1 2025 was to a great deal due to front-loading orders. While 15% tariffs are not the worst-case scenario, they are still substantially higher than their level at the beginning of 2025, and we expect that to have an inevitable toll. The main question right now is about the timing, which could be pushed towards early 2026, depending on how orders were distributed time-wise. However, we do not share the optimism that large EU exporters will adjust that quickly, especially Germany, whose manufacturing producers have been plagued by structural problems even before tariffs were put on the agenda. All this will not impact domestic price developments that much, however, as the main drivers of inflation are not industrial production costs, but service provider expenses, which in turn are largely driven by the robust increase in wages seen recently. It is the reason core inflation has remained consistently elevated, and why it will likely remain to be the case throughout 2025, despite the possibility of a weaker economic activity. Yet, stagflation would be an even worse scenario for the CNB, which reinforces the arguments for a hawkish stance.

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Further Reading:

CNB board statement from latest MPC meeting, Jun 25, 2025

Post-meeting press conference, Jun 25, 2025 (in Czech)

Q&A after the latest MPC meeting, Jun 25, 2025

Minutes from the latest MPC meeting, Jun 25, 2025

Monetary Policy Report, May 2025

Macroeconomic forecast, May 2025

Meeting with analysts, May 12, 2025

CNB board profile

CNB board members' presentations, articles, interviews (Czech)

CNB board members' presentations, articles, interviews (English)

• Net issuance due to USD forex bond, net issuance of forint securities is negative
• Households saving preferences shift away from government securities
• Large expiries of NBH discount bills, banks' forex bonds result in negative net issuance on economy-wide basis

The central government's net issuance amounted to HUF 704.0bn in June, the National Bank of Hungary (NBH) reported. The positive net issuance elevated the outstanding stock of government securities by 0.9% m/m to HUF 52,200.6bn at the end of the month. Its impact was dampened by negative revaluation effects, stemming from the forint exchange rate appreciation during the month. The net issuance entirely reflected the USD 4.0bn Eurobond placement in June. Otherwise, net issuance of forint bonds and T-bills was negative in the month. The State Debt Management Agency (AKK) still reported favourable 75% execution of the planned annual net issuance on the forint wholesale market as of end-June, we note.

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Data Download

Non-residents were the largest buyers of government securities in June, corresponding to the large forex bond issue during the month. The non-residents' share in the total government security debt rose m/m to 31.7%, breaching the AKK's 30% maximum threshold. The non-residents' share on the forint bond market was smaller but also increased m/m to 11.9% at end-June. Non-residents were net buyers of forint bonds for the fourth month in a row, purchasing net HUF 88.0bn in June. In contrast, domestic banks were net sellers of government securities, while households purchased only a negligible net amount of HUF 2.3bn. Households' interest in the government security market has waned in the past few months, in our opinion possibly related to the easing of headline inflation. Otherwise, households maintained on average a solid pattern of net security purchases since the beginning of the year, showing that saving preferences have rather shifted towards mutual funds, in our view.

The outstanding stock of securities issued by residents fell by 0.5% m/m to HUF 110,614.3bn at end-June. The government's net issuance was offset by large expiries of NBH discount bills and forex bonds issued by domestic banks. In addition, revaluation effects also contributed for the m/m decline in the stock of securities, mainly stemming from forint appreciation impact on the value of forex securities.

• USD-denominated reserves down by 2.1% m/m
• Panda bond issue, possibly EU fund transfers too, inflate forex reserves in July

International reserves amounted to EUR 47,124.2mn and rose by 0.2% m/m as of end-July, according to National Bank of Hungary (NBH) data. In USD terms, reserves declined by 2.1% m/m to USD 53,961.7mn due to the USD exchange rate fluctuations. EUR-denominated reserves hit their highest level since January but have been practically flat since the beginning of 2024. USD-denominated reserves have exhibited some upward trend lately, notwithstanding the m/m decline in July, mostly because of the USD weakening vis-à-vis the EUR after the start of the global trade conflict.

The small m/m hike in the EUR-denominated reserves in July was on the back of forex reserves. Forex reserves accounted for a 66.3% share of the total and were up by 7.7% m/m. We attribute the visible increase partly to the government's CNY 5bn Panda bond issue during the month. There were other more significant factors at play though, in our opinion possibly some pick-up of EU fund transfers. The value of gold holdings also rose by 3.1% m/m, likely because of the rise of global gold prices, we think. Conversely, other reserve assets were down by 42.4% y/y, which usually reflects the NBH forex swap operations with domestic banks.

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• Gulyas confirms job protection plan as part of policy to mitigate fallout from new tariffs
• Special housing assistance to civil servants could have fiscal cost of HUF 100bn per year
• New home purchase office to be set up, to encourage new housing construction

The government will prepare a strategy to counter the impact of the US tariffs on the Hungarian economy, PM Office head Gergely Gulyas announced at the regular press conference today. Calculations were currently under way to quantify the precise impact, he noted. There are available options to mitigate the prospective negative fallout and several measures have been already discussed, he said. They will be announced once the government adopts the respective decisions, he said but highlighted that a job protection plan will definitely feature in the package. The job protection plan will also be drafted within two weeks based on proposals by employers and ministries, he said.

The special housing assistance to civil servants could cost the budget HUF 100bn per year, Gulyas revealed. As we reported earlier, the government had initially refused to disclose fiscal cost estimates, arguing that it had not decided on the exact scope of the programme. Gulyas did not announce details but stressed that the scope will be as broad as possible, including public and local government administration, budget agencies, teachers, police officers and healthcare employees. Some 18% of all employees have borrowed housing loans, while the share for civil servant borrowers was relatively lower at 15%, he said. Reversing the formula, we think that Gulyas' estimate on the cost of the special housing assistance assumes around 670,000 people as possible beneficiaries. Employment in budgetary institutions numbered 651,100 people in 2024, according to the earnings data by the stats office, compared to total employment of 3.2mn.

A large part of the press conference was dedicated to the housing loan programme, which will start on Sep 1. The programme will help home buyers in four ways - through security, lower loan instalments than market loans, access to larger properties and a more favourable 10% downpayment option, economy ministry state secretary Miklos Panyi said. The government will simultaneously establish a Home Start Programme Office under the PM Office, which will be mandated to coordinate the programme and encourage housing construction, he said. The new office will award priority investment status to property developments that contain at least 250 apartments and meet 70% of the programme's goals, he added.

The government targeted the launch of 50,000 new housing developments in the next five years, representing investments worth HUF 4,500-5,000bn and tens of thousands of new jobs, Panyi stated. The construction of some 20-25,000 apartments could start in one year, adding to the existing 100,000 properties on the market, he pointed out. Panyi implied that the expected dynamic increase in housing supply would counteract any demand-side pressure on housing prices. We think that housing demand will appear almost immediately after the launch of the programme in Sep 1, while time gaps in the materialisation of the new supply could still result in housing price hikes.

• Bogucki called the bill a "trap", and said there would be a "clear message" from the president
• Apart from liberalising building onshore wind farms, the bill also extends the power price freeze into Q4 2025
• PM Tusk said the government would do everything it could so that power prices are not painful

Zbigniew Bogucki, the future head of the newly established office of the president (we will use chief of staff for short), heavily implied that President Karol Nawrocki could veto the government's windfarm bill, which has just passed in the Senate. Bogucki told Polsat News that there would be a "clear message" about the bill very soon. The bill aims to liberalise onshore wind farms, in an attempt to keep electricity prices low. Yet, Bogucki called it a trap for Nawrocki, as well as for his predecessor, Andrzej Duda, who was also reluctant to sign it. Bugucki further that the bill would be "dealt with", which we believe translates to a likely veto.

We remind that the bill also includes an extension to the power price cap through Q4 2025. It is probably why Bogucki called it a trap, arguing that it combined measures to keep energy prices low with projects that were not favourable for the domestic energy sector. Nawrocki has been highly sceptical of expanding wind power capacity, and he campaigned heavily against it. Bogucki assured that Nawrocki's Plan 21, which envisages a 33% cut in energy prices for households, remained in play, and there would be legislative action towards it, without elaborating further.

As far as the government is concerned, PM Donald Tusk said in a press conference on Thursday (Aug 7) he would do everything he could to make power prices not painful, especially for households. At this stage, the government is in a wait-and-see mode, and no concrete plans have been made public in case Nawrocki does veto the bill. Energy minister Milosz Motyka said last week that the ministry would see how power tariffs wind up before making a move. The deadline for submitting price changes that will take place as of October expired at the end of July, and the energy regulator needs to approve them by the end of September. While wholesale prices have eased a bit, they are reportedly at a level still above the current price freeze at PLN 500/MWh. We remind that heating prices were liberated as of July, and natural gas prices have fallen by about 15%, which should provide some relief. Still, vetoing the windfarm bill has the potential to cause some pain, which could probably be what Nawrocki is seeking in the first place.

• Zbigniew Bogucki will head the chancellory, as Nawrocki wants to leave some bridges to the PiS
• Pawel Szefernaker, Nawrocki's campaign manager, will head a new office of the president, which we suspect will be the true source of influence
• Slawomir Cenckiewicz, having displayed nationalist leanings, will head the National Security Bureau
• Nawrocki's appointments show he wants nothing to do with Tusk and his government

President Karol Nawrocki announced his first appointments to his administration, which will formerly take place on Thursday (Aug 7). The announcement has not brought up any surprises, as Nawrocki's picks are either coming from PiS circles, have nationalist leanings, or are among his colleagues at the National Remembrance Institute, which Nawrocki has headed since 2021.

Zbigniew Bogucki, a PiS official and a former governor of West Pomerania, will head the president's chancellery. Bogucki was once speculated to be the PiS presidential candidate, but he ceded to Nawrocki. Bogucki is considered a somewhat balanced choice, though still acceptable to the PiS, give his ties to the party. Yet, his deputy at the chancellor's office will be Adam Andruszkiewicz, a former far-right activist, who used to be deputy minister of digital affairs. Andruszkiewicz's appointment back in 2019 raised eyebrows, implying that the PiS may be catering to far-right partners a bit too much.

Pawel Szefernaker, Nawrocki's campaign manager, will head the newly established office of the president. Szefernaker was initially believed to head the chancellery. Yet, it appears Nawrocki has made a move to appease the PiS a bit by appointing Bogucki. Still, we suspect that the new office will be the true source of influence around the president, while Nawrocki is trying not to alienate the PiS too much. It could also imply that Nawrocki has his own political ambitions, and he doesn't necessarily want to be beholden to the PiS. While this could be an opportunity to push aside Nawrocki from the PiS, we doubt it will matter much, as Nawrocki has a much stronger dislike for PM Donald Tusk and his coalition than for the PiS. Szefernaker will be assisted by some personnel from the Institute of National Remembrance, like Jarosław Debowski who will be Szefernaker's deputy, and Rafal Leskiewicz, who will be the office's spokesman. Moreover, Mateusz Kotecki will become head of human resources.

There are also some people who will carry over from the administration of former president Andrzej Duda. One of them is Marcin Przydacz, who will head the office for international affairs. Wojciech Kolarski, who headed that office under Duda, will also say as an advisor.

The last major appointment is Slawomir Cenckiewicz, who will head the National Security Bureau. Cenckiewicz is considered to be to the right of even Jaroslaw Kaczynski, and he has some baggage related to security blunders, like the release of secret plans and apparently lying on a security survey. Yet, he is also considered a Konfederacja-style politician, which strengthens the impression that Nawrocki may wish to carve his own path, and potentially rival the PiS.

The overall impression from the appointments is that Nawrocki is clearly drawing a battle line against Tusk's government. None of these people are even remotely interested in co-operating with the current government. They reinforce the remarks of Nawrocki during his swearing in, namely that he intends to give no breath of air to Tusk and his government. We can expect confrontation on all fronts, and Nawrocki's remarks about a new constitution and more executive power would imply that he will be stretching his authority as much as he can get away with.

President Nawrocki launches a confrontation [on his inauguration speech] (Gazeta Wyborcza)

President Nawrocki behaves as if he has become a prime minister after swearing in, and the PiS is back in power (Rzeczpospolita)

Nawrocki in the [Presidential] Palace. A prelude to [general election] campaign in the Sejm (Gazeta Prawna)

"Plan 21" is a fairy tale for billions. Nawrocki promises to smash Tusk government from within (Gazeta Wyborcza)

Marco Rubio after the meeting in Moscow: We have heard what the conditions for an end to the war are (Rzeczpospolita)

What did Trump offer Putin for a truce? (Gazeta Prawna)

Zelenskyy after his conversation with Trump: An end to the war must be fair (Gazeta Wyborcza)

US trade deficit the lowest since 2004. Tariffs on drugs target 250% (Rzeczpospolita)

Donald Trump levies new tariffs on India (Gazeta Wyborcza)

All credit to the head of the president's office. Lucky second choice (Rzeczpospolita)

• The month-on-month increase of 0.2pps is not typical, unemployment rates tend to stay flat in July
• The number of registered jobless increased at a robust rate, which is also unusual
• This could mean the economy is losing pace in H2

The registered unemployment rate increased to 5.4% in July, higher by 0.2pps m/m and by 0.4pps y/y, according to early data from the labour ministry. We remind that labour ministry estimates are typically fairly accurate, so the increase is likely to be confirmed by GUS data, to be published later in August. The month-on-month increase seen in July is not typical, as the 10-year average for that month implies that unemployment rates tend to remain flat.

Data Download

The number of registered unemployed increased by 33.6k in month-on-month terms, which as the strongest rise seen since January. Meanwhile, the number of jobless people was higher by 65.2k in year-on-year terms, which is also a noticeable acceleration, though the increase was solid in June as well, at 34.8k.

The registered unemployment rate tends to overestimate actual unemployment, as registered jobseekers receive access to the universal healthcare system. However, trends typically match with the LFS unemployment rate, so the current increase should lead to some concerns. Typically, the registered unemployment rate tends to be fairly stable during the summer (data is not seasonally adjusted), and then pick up in Q4 at the earliest. Thus, this could be an early indicator of job losses, implying that the economy may be seeing harder times.

• PLN 12bn was borrowed at the main auction, at the top of the announced supply
• The issue was topped up by PLN 1.9bn, stronger than at the Jul 23 auction
• We estimate that the finance ministry has covered about 87% of its gross financing needs as of Aug 6

The finance ministry sold a total of PLN 13.9bn through a government bond auction, according to official results. The amount breaks down to PLN 12bn in the initial sale, and PLN 1.9bn of top-ups. All six series were on offer yet again, with an average bid-to-cover ratio at 1.31, consistent with the previous auction from Jul 23, but lower than auctions held earlier. The borrowed amount was at the top of the envisaged supply, at PLN 8-12bn. As far as the top-up is concerned, it increased yet again, up from PLN 1.3bn borrowed at the Jul 23 auction.

We estimate the coverage of the gross borrowing requirement increased from 85% at end-July, as reported in the latest monthly bulletin, to about 87% after this auction. The coverage ratio remains at a relatively elevated level, which could potentially allow the finance ministry to start with pre-financing for 2026 some time in late October or early November at the latest.

Question:

Can Nawrocki veto the budget? What would happen in that case?

The question was asked in relation to the following story: PM Tusk defines Nawrocki's tone at swearing-in as confrontational

Answer:

Technically no, but the president can send the budget bill for review at the Constitutional Tribunal, which is currently dominated by PiS members. If the Tribunal decides that parts of the budget are unconstitutional, whether justified or not, the Sejm will need to revise the bill. This could in turn provoke issues within the ruling coalition, which is far from united on all aspects of fiscal policy. Thus, Nawrocki could play a delay game, trying to exploit potential divisions within the government.

Whether this is successful will depend largely on political calculations, as not all parties in the current ruling coalition will probably want to be part of the government when the next general election comes in 2027. At this point, a break in the ruling coalition is more likely when the 2027 budget bill comes up, so I defer to his judgment on this. Still, this doesn't mean Nawrocki won't attempt to interfere in any way he can, and such a scenario cannot be ruled out.

Regarding what happens if there is no budget adopted by the end of the year, a provisionary budget will be in effect, limiting expenses at 2025 levels until a new budget is adopted. Regarding deadlines, the government needs to send a budget bill to parliament by the end of September. Then, there is a 4-month deadline within which a budget bill needs to be on the president's desk.

There is some murky legal ground here, as it remains unclear what happens if the government and the parliament ignores the Constitutional Tribunal rulings. There have been some occasions of this already, but never related to budget bills. Technically, if the parliament passes the budget bill again, even if some texts are declared unconstitutional, the budget bill would be considered signed. Yet, Nawrocki is unlikely to sit idle, so he could try some other legal challenge, though since there is no legal precedent, there is no clarity what that could be. In short, we may be entering some very unclear legal precedent, with high uncertainty about the outcome.

• The net fiscal impact from the increase is projected at PLN 1.3bn

The minimum wage hike of 3% in 2026 is projected to raise labour costs by slightly over PLN 4bn, according to the official impact study attached to the proposal. We remind that the government proposed an increase to the monthly minimum wage to PLN 4,806 back in June. The projected higher labour costs split between PLN 3.44bn for SMEs and PLN 605.3mn for large enterprises.

Households are expected to see an increase in income by about PLN 2.72bn annually. Meanwhile, the net fiscal impact from the hike is projected at PLN 1.3bn, which accounts for a higher intake of taxes and contributions, as well as higher labour expenses. We remind that a hike in the minimum wage typically has a knock-on effect on wages near the minimum level.

Production losses for winter fruit are also expected due to devastating frost meaning significant price increase for apples, pears, and quinces this winter (Sozcu)

FinMin Mehmet Simsek: Single-digit inflation to be reached in 2027 (Sozcu)

Turkey's plastics giant declares bankruptcy (Sozcu)

Everyone is after cash, even big companies cannot pay their debts (Sozcu)

Businessman Sarp Yalcinkaya testifies for second time in IMM investigation: Private jet and London allegations (Hurriyet)

President Erdogan: Turkey ranks first in world archaeology (Hurriyet)

Occupancy rate of dams in Istanbul drops to 50% (Hurriyet)

CHP Beykoz municipal council member Burak Korkmaz is detained (Sabah)

Justice minister Yilmaz Tunc regarding investigation into fake diplomas: All necessary steps are being taken (Sabah)

USD 7bn in external financing is provided in 2025 (Sabah)

Dark night for the government as opposition in Congress rejects half a dozen of Sturzenegger's deregulation decrees (La Nación)

Opposition passes university funding bill and challenges Milei (Infobae)

Government insists it will veto spending hikes but says open to discussion on resource distribution (Clarin)

Deadline to present alliances for midterms expires today as government accelerates negotiations in key provinces (Infobae)

After deal in City of Buenos Aires, PRO and Freedom Advances negotiate joint lists in over 10 provinces (Clarin)

PRO in pieces as surrender to Karina Milei in the capital deepens internal party tensions (La Nación)

Central Bank reserves fell nearly USD 600mn after IMF payment (Infobae)

Southern Energy confirms second floating LNG vessel and dedicated pipeline for export project (EconoJournal)

"Symbolic": farmers welcome gesture of lower export taxes but say margins remain tight (Clarin)

Oil firms: multinationals exit Vaca Muerta blocks while small firms file for bankruptcy (Clarin)

• Two comments on the global view of Milei and the replicability of his 'chainsaw economics'

David Lubin, an ex-client of ours and currently a fellow at Chatham House, wrote an excellent piece on Argentina here. It is a very good overview on President Javier Milei's 'chainsaw economics', David clearly knows his stuff. However, we find this a good opportunity to raise one point on which the view from London and the view from Buenos Aires can differ, and one point on the replicability of the chainsaw approach:

1) We wouldn't say Milei is "remarkably popular" in Argentina. Milei's approval rate is high if adjusting for the big spending cuts and weak economy he is overseeing. However, he is very polarizing and usually has higher disapproval than approval in polls. Milei can definitely do well in the upcoming midterms and eventually win reelection, but this is in large part because the main opposition just left the country in recession and on the brink of hyperinflation a year and a half ago. We would argue there is as much fear or dislike of Peronism than support for 'chainsaw economics' behind Milei's neutral polling numbers.

2) There are many elements central to the 'chainsaw' approach and its success that may not be replicable and are typically understated. A few of them:

• Almost twenty years of declining per capita GDP and very high inflation steeled Argentinians for the 'chainsaw economics'. By the time Milei got elected, a majority of the population could finally see that bad government and fiscal mismanagement were at the root of Argentina's long-standing macro problems. Without a hyperinflation scare and this long period of very obvious mismanagement, a head of state doesn't get the level of tolerance for spending cuts, low real wages, and recession that Milei had.
• The near-hyperinflation did a lot of the dirty work in allowing the government to slash spending in real terms. It's much harder to announce a 20% nominal cut to public sector wages than to keep nominal public sector wages steady for just one month, during which you happened to have 20% monthly inflation. The government still deserves massive credit for the fiscal consolidation, but they don't slash spending in nearly the same magnitude, and with as little social pushback, without triple-digit annual inflation.
• Argentina was coming off 20 years of incredibly wasteful spending and rent-seeking regulations by corrupt governments. These governments had exceptional executive powers and Congress majorities for most of those 20 years, so they created more fat for the chainsaw to cut than most countries have.

• Gap between consensus GDP forecast of +5.0% and govt's 5.5% holds
• Expected inflation for next 12 months up slightly after ARS slide, but medium-term CPI forecast goes down

The consensus GDP growth forecast among Argentina-based economists held at 5.0% for 2025, hovering around the 5.0%-5.2% mark for the fifth month in a row, according to a survey done Jul 29-31 and published late Wed. by the BCRA. This forecast is below the 5.5% put forward by the government and used in the IMF program. The consensus at 5.0% is relatively conservative about GDP growth in the second half of the year, which seems consistent with high frequency data that is showing some signs of slowdown of late. The consensus GDP growth forecast for 2026 fell 0.1pps to 3.4% in July, after sitting at 3.5% in the prior five months.

Expected inflation for the next 12 months ticked up to 21.1% from 20.7% a month prior, while expected inflation for the following 12 months (Aug 2026 - Jul 2027) fell to 11.7% from 13.4%. This up-and-down change follows the depreciation of the ARS in late July, which came as a surprise. The market knew an exchange rate correction was necessary eventually, but was expecting the government to maintain nominal stability for longer. An earlier correction, even if partial, adds to inflation pressure in the short-term while removing the need for a correction as a factor stoking medium-term expected inflation.

Click here for our comprehensive database of macro forecasts.

• Southern Energy consortium hires second LNG vessel to push nameplate capacity to 5.95 MTPA
• First LNG vessel arrives mid-2027, second one in 2028

The Southern Energy consortium confirmed Wed. the final investment decision on the hiring of a second floating LNG vessel from Norway's Golar for 20 years, the website Econojournal reported. Southern Energy had already gone ahead with the final investment decision for a 20-year contract with a first ship, Golar's vessel Hilli Episeyo, which has a nameplate capacity of 2.45 million tons per annum (MTPA) and is set to arrive in mid-2027. Southern Energy is now confirming the hire of Golar's MKII starting in 2028, pushing the combined nameplate capacity to 5.95 MTPA.

Southern Energy is a consortium formed by Argentina's main local oil and gas players, Golar, and the London-based Harbour Energy. The stake is distributed as Pan American Energy (PAE) 30%, YPF 25%, Pampa Energia 20%, Harbour Energy 15%, and Golar LNG 10%.

This investment is part of an LNG project named LNG 1, as it is the first of three projects through which Argentina would export LNG. The other two are more ambitious in terms of required investment and production capacity, but have not reached a final investment decision.

• Exports fall 35.7% y/y for lowest monthly export total since Covid lockdowns
• Sales to local dealerships rise 14.0% y/y, lagging well behind imports
• Automakers blame winter holidays and plant maintenance for low output, but strong REER clearly plays

Vehicle production declined 16.5% y/y to 37,112 units in July, comparing against a July 2024 in which output had already declined 9.8% y/y, according to data from the automotive factories association Adefa. Total production is up 10.1% year-to-date, but against a very low base of comparison. Adefa said the weak July performance is in part tied to winter holidays, plant maintenance, and the work to introduce new technologies. However, it also mentioned that it is important to work with national and provincial authorities on measures to increase competitiveness in a more open economy, including through tax cuts.

Data Download

Exports fell 35.7% y/y in July. The 18,225 units exported marks a low for a non-January month since the last lockdown. This reflects automakers' struggles to sell abroad amid a strong REER environment, and it will be interesting to see how sales evolve now that there was some depreciation in the last five weeks.

Sales by local automakers to local dealerships increased 14.0% y/y in July, while vehicle registrations increased 44.0% y/y. Foreign cars are growing the market share fast since the elimination of import restrictions, and many automakers have announced the suspension of certain models that they now intend to import from Brazil and Mexico.

Haddad: plan for tariff increase is ready at the Finance Ministry and may come through a provisional measure (Poder360)

Haddad says he will meet with US Secretary Scott Bessent on Wednesday [Aug 13] (Correio Braziliense)

Haddad calls on business leaders to take action against opposition that 'hinders' relations between Brazil and the US (Folha de São Paulo)

Lula administration takes Trump's tariffs to WTO, says Foreign Ministry (G1)

It is important that Pix remains public infrastructure, says Galípolo (UOL)

Tense atmosphere marks attempt to resume work in the Chamber of Deputies (CNN Brasil)

STF justices consider revocation of Bolsonaro's house arrest unlikely (O Globo)

Lula says he will become "more leftist and more socialist" to combat hunger (InfoMoney)

Lula wants joint BRICS decision on US tariffs (Agência Brasil)

• Lula says he will take the tariff discussion to the BRICS
• Lula says he will only call Trump when there is truly room for dialogue

President Lula da Silva ruled out the possibility of Brazil implementing reciprocal tariffs on US products in response to the increase in import tariffs on Brazilian products by US President Donald Trump, according to remarks given Wed. in an interview with Reuters. Lula also said he expects to bring the tariff issue for discussion with BRICS members and that he has not yet called Trump because he has seen no genuine openness from him, but assured he would call as soon as such an opportunity arises.

Overall, Finance Minister Fernando Haddad had already anticipated that there would be no response to the US tariff increase at the moment, as Brazil makes efforts to advance bilateral negotiations and support domestic companies that may be harmed. We note that literal reciprocal tariffs would be difficult due to the Mercosur legal framework, which makes us believe that any future response would likely come through cross-retaliation (likely on intellectual property). At the same time, the government took the tariff issue to the WTO this week, mainly to reinforce its defense of multilateralism, although nothing is expected to come out of it in the near term (or at all) given the organization's paralysis.

• Surplus falls 6.3% y/y to USD 7.1bn in Jul from USD 7.6bn the year before, but comes in above the consensus for a USD 5.8bn surplus
• In Jan-Jul, surplus falls to USD 37.0bn from USD 49.1bn a year before

Brazil's trade surplus fell 6.3% y/y to USD 7.1bn in July from USD 7.6bn the year before, coming in above the consensus expectation for a USD 5.8bn surplus, according to data released Wed. by the Development, Industry, Commerce, and Services Ministry (MDIC). This marks the fourth consecutive surplus decline on y/y terms. On a monthly basis, the surplus rose by 20.1% m/m from a USD 5.9bn surplus the previous month. In Jan-Jul, surplus fell to USD 37.0bn from USD 49.1bn a year earlier.

Data Download

Exports grew by 4.8% y/y to USD 32.3bn in July, rising for the second consecutive month after a slight decline in May. The increase was led by the manufacturing industry and supported by extractive and agricultural products. Meanwhile, imports grew by 8.4% y/y to USD 25.2bn, marking the sixteenth consecutive increase. In the breakdown, imports were driven by manufactured products, which saw imports rise by 11.1% y/y, and primary products, which grew by 3.8% y/y after two consecutive months of decline. Manufactured products represented 93.4% of all imports in July (same share as in June).

China remained Brazil's main trading partner in July, accounting for 31.1% of exports (down from 33.5% a year earlier) and 24.0% of imports (matching the Jul 2024 share). The EU was the second-largest destination for Brazilian exports (15.5%), followed by the US (11.5%). The same ranking applied to imports: the EU accounted for 18.8% of imports in July and the US for 16.9%. Exports to the US rose on a yearly basis once again, despite the additional tariffs introduced in April.

Overall, imports continue to rise faster than exports, reducing the trade surplus this year compared to 2024. Exports to the US continued to rise, which could be explained by accelerated sales ahead of the Aug 6 deadline for the implementation of the 50% tariffs on Brazilian exports. We believe the tariffs should have some limited impact on exports to the US as around 700 product lines were exempted. According to Finance Minister Fernando Haddad, only 4% of Brazilian sales to the US should be affected, with half expected to be redirected to other markets. Coffee and meat are seeking to be included in the exemption list, which will likely be discussed between Haddad and US Treasury Secretary Scott Bessent at their Aug 13 meeting. Although we see room for coffee, it may be hard to exempt meat, in our view. Even though some domestic companies have reported early effects from the tariffs, August data should give a clearer picture.

• MPC meeting: Sep 16-17, 2025
• Current policy rate: 15.00%
• EmergingMarketWatch forecast: Hold

The US decision to raise import tariffs on Brazilian products from 10% to 50% has created a new source of international uncertainty for the economy, reinforcing the need for caution in monetary policy, while recent economic growth data show mixed signals, according to the minutes for the Copom's Jul 29-30 policy meeting. While awaiting the outcome of negotiations between the US and Brazil, the Copom indicated it is likely to keep the Selic unchanged at 15.00% to assess the lagged effects of the tightening cycle and will continue monitoring the tariffs' impacts on the domestic economy. The Copom also reiterated its commitment to price stability and did not rule out additional rate hikes, if necessary, although we believe this is unlikely.

The Copom said that the US tariff hike on Brazilian products should have significant sectoral impacts and uncertain aggregate effects, depending on the next steps in negotiations and on risk perceptions surrounding the process. The tariffs are expected to enter into force on Aug 6 while talks between the two countries should continue. US President Donald Trump has recently shown some willingness to speak with President Lula da Silva, but the development of former President Jair Bolsonaro's attempted coup trial poses a potential obstacle to effective negotiations, despite Lula's efforts to keep politics and ideology out of the discussions. As the Brazilian government is unlikely to retaliate at this stage, Trump granted around 700 exceptions to the tariff increase (including some of Brazil's main exports to the US), and a contingency plan to mitigate the tariffs' domestic effects is expected, we believe the near-term economic impact of the tariffs should be limited.

The Copom also noted that recent mixed signals in economic activity are consistent with a turning point resulting from monetary tightening. On one hand, the credit market has shown greater moderation, while on the other, the labor market remains tight, sustaining aggregate demand with real wage gains above productivity. Unemployment fell to 5.8% in the rolling quarter ended in June, its lowest level on record, while real wage growth continued, reinforcing the BCB's view of labor market resilience.

On inflation, the BCB noted some signs of easing, although cumulative IPCA inflation remains above target. The Copom expects inflation to fall below the 4.50% upper limit of the +/- 1.50pp fluctuation band around the 3.00% target by Q1 2026 and gradually converge toward the center of the target. For the relevant policy horizon (Q1 2027), the Copom forecasts inflation at 3.4%. As persistently de-anchored inflation expectations remain a common concern for committee members, the Copom reiterated that monetary policy will stay at a restrictive level for a very prolonged period, signaling that the easing cycle is not on the near-term horizon.

Overall, Copom's tightening cycle appears to have ended after the Selic was raised from 10.50% in Sep 2024 to the current 15.00%, totaling 450bps in hikes. Given the fast pace of increases, the committee decided to halt further tightening to assess the lagged effects, which are expected to deepen in the coming months. The uncertainty stemming from US tariffs has added another layer of caution to monetary policy, making the current Selic level appear to be Copom's preferred stance in the face of global uncertainties. In this environment of elevated uncertainty, lingering inflationary pressures, and de-anchored expectations, we expect the Copom to hold the Selic at 15.00% at least until year-end and begin considering an easing cycle in early 2026. However, even if rate cuts begin next year, the Selic is likely to remain in restrictive (double-digit) territory as fiscal uncertainties continue to weigh on expectations and a broad fiscal reform is expected after the 2026 elections (though its form will depend on the elections' result).

Ebrard says Mexico has the lowest tariff from Mexico, says he's been asked how they've done it (El Financiero)

President Sheinbaum announces a visit by Canada's prime minister (La Jornada)

US Treasury blocks accounts from people linked to the Northeast Cartel (La Jornada)

PEMEX comeback plan lacks operations overhaul sought by analysts (Bloomberg)

Andy López Beltrán breaks silence over his vacation in Japan (Político MX)

Andy López Beltrán accuses his adversaries sent spies to his vacation in Japan (El Universal)

Sheinbaum refuses to discuss the letter sent by Andrés López Beltrán, Senator Noroña says it's fake and lousy (Animal Político)

Noroña criticizes Andy López's letter in which he justifies his vacation in Japan (El Financiero)

1.2mn app workers are getting social security at the IMSS (La Razón)

BBVA sasy remittances will continue to flow to Mexico but at a weaker pace than in 2024 (El Economista)

Mexico will have its oil revenues plunge in 2026 (Expansión)

Adán Augusto says he won't be scared away from facing the authorities [on his alleged links to a criminal organization called La Barredora] (Reforma)

Mexican Peso advances vs the US Dollar awaiting local inflation data and Banxico's announcement (El Economista)

• Remittances' inflow fell 5.6% y/y in H1
• BBVA says there is no evidence to suggest this decline is caused by Trump's policies

The remittances' inflow will be falling by some 5.8% this year, Spanish bank BBVA predicted on Wednesday. This projection is consistent with the 5.6% decline posted in H1, reported by the CB.

Interestingly, BBVA says they see no evidence to suggest the decline is caused by the migration policies imposed by US President Donald Trump. They note the flow is only declining in Mexico, while the flow should be falling in Central and South America too if ICE and Trump's actions were the driver.

Overall, declining remittances risk a deceleration of private consumption, particularly in the regions that depend the most on this inflow. It's unclear to us how much of this deceleration might be transitory or the result of a base effect; however, it's clear this will have a negative impact on private consumption during 2025 and, we see no reason to suspect a solid rebound in 2026.

• Next MPC meeting: August 7
• Current policy rate: 8.00%
• EmergingMarketWatch forecast: 25bps cut

We are confident the CB will be cutting its policy rate by 25bps on Thursday, despite lingering CPI inflation pressures. Indeed a recent consensus poll shows a robust agreement that the CB will be slowing its easing cycle this week but will continue to ease.

Data Download

Whether the CB should continue to trim its Monetary Policy Rate (MPR) is not evident to us. Indeed, although CPI inflation slowed to 3.55% y/y in July H1, the deceleration came on the back of non-core inflation, with core CPI inflation standing at 4.25%, suggesting general inflation is in no path to converge to the CB's 3.00% punctual target.

Deputy Governor Jonathan Heath might be right by calling the CB not to cut its policy rate despite the July H1 disinflation. Indeed, we are confident Heath will break ranks with the rest of the board, voting to hold the policy rate at 8.00% in August.

However, we expect the four remaining members to vote for a 25bps cut, considering the dovish discourse held in past sittings. It will be crucial to see if some of these members ponder pausing the easing cycle ahead, although we expect another 25bps cut to come in September.

We insist mid-term inflationary expectations might be more relevant than current reads. In this regard, we note the own CB has revised its short-term projections up, while holding the prediction that CPI inflation will meet its 3.0% target by Q3 2026, a forecast not shared by market analysts.

The market believes the policy rate will close the year at 7.50%; however, we aren't so sure, believing the outlook for Q4 is not so clear. Accelerating CPI inflation could prevent any further easing, having the MPC close the year in line with the market consensus. However, we insist the dovish discourse of the CB suggests it might be willing to trim the policy rate a bit further.

Overall, we expect the CB will cut its policy rate by 50bps in Q3. We expect the easing to come from a divided board; with only Deputy Governor Heath breaking ranks. The chances of either Deputy Governor Borja or Cuadra joining Heath plummeted on recently recorded disinflation but might grow again if inflation disappoints or if they begin to refocus on core inflation. We expect the CB will be discussing pausing its easing cycle in the coming sittings. Amid this inflationary pressure, it's very possible that Banxico will not be cutting its MPR during all the remaining 2025 sittings, pausing in one or both Q4 sittings. Thus, depending on the pace of CPI inflation and mid-term expectations, we expect the policy rate to close the year at 7.25 or 7.50%.

Egypt: FRA issues new financial solvency standards for insurance companies (Zawya)

GAFI positions Egypt as a global hub for logistics and tech, Heiba Says (Zawya)

National Printing begins trading on EGX post-IPO (Zawya)

Egypt sets November 1 for opening of world-class Grand Egyptian Museum (Egypt Today)

Egypt, Vietnam Forge New Path for Economic Collaboration with Strategic MoU (Egypt Today)

Egypt signs vaccine production agreement with UAE's Al Qalaa, China's Red Flag (Daily News Egypt)

Madinet Masr launches Talala in New Heliopolis with EGP 90bn investments (Daily News Egypt)

Nine Chinese, Turkish firms invest USD 41.6mn in Ismailia Free Zone, creating 16,000 jobs (Daily News Egypt)

Tiktok Removed 2.9mn Videos in Egypt in 2025 (Egypt Business)

e-Tax has received approval to build Egypt's digital tax platform (Egypt Business)

Tourism in Egypt Thrives: Now, Major Hotel Developments in Cairo and Sharm El-Sheikh (Egypt Business)

Egypt approved to join Turkiye's 5th-generation KAAN fighter jet program (Egypt Business)

• Transit volume fell 17% y/y in Jan-Jul, we don't expect meaningful improvement in traffic figures in second half of 2025
• We estimate Egypt lost USD 3.9bn revenue to insecurity during Jan-Jul

The number of ships - consisting of tankers and cargo ships - passing through the Suez Canal rose by robust 6.6% m/m to 1,017 in July, following a strong 9.7% m/m decline in June, according to data from IMF's PortWatch data platform. Adjusting for the fewer days in June, we get that the m/m increase was more modest 3.3%. The insecurity in the Red Sea and the heightened global trade uncertainty will keep dragging on the traffic through the canal, while the resumption of Houthis attacks in June means that many ships are still avoiding the Suez Canal and are taking the longer route south of Africa. The June attack that sank the first ship this year ended half a year of calm in the Red Sea, where Houthi attacks from the end of 2023 through late 2024 had disrupted shipping between Europe and Asia through the Suez Canal. Taking these external factors into account, we don't expect any meaningful improvement in the coming months, despite a temporary 15% reduction in transit fees. In y/y terms, the number of ships fell by 14% from an already low base, and the 7-day moving average fell to 31 ships on July 31 from 42 on the same day a year ago.

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The number of ships fell by 17% y/y in Jan-Jul, which came on top of a 46% y/y drop in 2024. According to our estimates, Egypt lost USD 6bn in Suez Canal revenues last year, but the government said the loss was closer to USD 8bn. The government's estimate is equal to about 2.0% of GDP and accounts for about 17% of CBE's foreign reserves. As noted, the outlook for 2025 is now significantly worse than just a few months ago and we now expect another year of weak FX earnings. According to our calculations, Egypt lost USD 3.9bn Suez revenue to insecurity year-to-date.

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• Next MPC meeting: August 28, 2025
• Current policy rate: 24.5%
• EmergingMarketWatch forecast: 22.5% - 23.5%

The next MPC meeting is on August 28, and we expect that the committee will resume the monetary easing cycle after holding rates unchanged in July. We expect a 100-200bps rate cut, depending on the inflation report for July due on Aug 10, and the global and regional environment. Despite the surge of portfolio inflows over the past year and a half, Egypt has managed to boost its resilience to external shocks and the latest two major external shocks - the US tariffs announced in early April and the 12-day war between Israel and Iran mid-June - had limited impact on the country. Further, the pound has been appreciating since early July, partly due to capital inflows and partly to US policy to weaken the US dollar, which will allow the CBE to cut the interest rates.

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Headline inflation is expected to remain contained during H2 2025 driven by the cumulative impact of monetary policy tightening and the favourable base effect. Consumer inflation is expected to moderate during 2026, albeit at a slower pace given the expected drag effect from the fiscal measures aimed at tightening the fiscal stance. As such, underlying inflation is expected to converge to its historical average over the medium term, while the MPC says that inflation expectations have improved recently. GDP growth recovered in 2024/25, as the FX shortages were eliminated, manufacturing rebounded, FDI inflows picked up, and tourism inflows remain resilient. The MPC said that GDP growth should reach its full potential by mid-2026.

Monetary Policy Committee Statement

Monetary Policy Review

Monetary Policy Committee Meeting Schedule

• Visa limits include three-month validity and single-entry access for B1/B2, F and J visas
• Nigeria's federal government criticizes the US policy as disproportionate and unfair
• US also warned Nigerians against birth tourism to obtain citizenship for children

The United States has not yet lifted its recent visa restrictions on Nigerian citizens, despite ongoing diplomatic efforts by Nigeria's federal government. This is according to the ministry of foreign affairs spokesperson Kimiebi Ebienfa who provided an update to media on Wednesday (Aug 6). While high-level talks continue, the US has not formally responded to Nigeria's request for a policy reversal. The restrictions limit the validity of non-immigrant visas such as B1/B2 (business and tourism), F (student) and J (exchange visitor) to three months with single-entry access. The federal government has strongly criticised the US visa policy, labelling it disproportionate and inconsistent with the principles of equity and reciprocity expected between allied nations.

The US's firm position on visa restrictions is also evident in its recent warning against birth tourism by Nigerian mothers. On Wednesday the US mission in Nigeria posted a notice on its official X account, cautioning against travelling to the United States solely to obtain US citizenship for children. The mission warned that this is prohibited under US visa regulations and can result in visa denial.

• Media reports misinterpreted NUPRC data, calling the open blocks abandoned
• NUPRC said the blocks are pending allocation through future bid rounds

The Nigerian Upstream Petroleum Regulatory Commission (NUPRC) dismissed claims that 220 oil blocks have been abandoned, clarifying that the blocks are simply awaiting licensing. In a statement, the commission said it recently published the concession status of 243 oil blocks to promote transparency in line with the Petroleum Industry Act (PIA) 2021. Media outlets then suggested that 220 oil blocks in Nigeria had been abandoned, citing data from the NUPRC's website indicating open or undeveloped blocks across onshore and offshore basins. Some media publications framed the situation as being driven by Nigeria's economic challenges, specifically debt and crude issues.

In their clarifying statement, the NUPRC said their website data was misinterpreted. According to the commission, the 220 oil blocks are yet to be awarded and will be allocated to investors through future bid rounds once statutory conditions are fulfilled, as outlined in Section 7(t) of the PIA. The statement also urged the media to report responsibly and to consider national interest when covering issues in the petroleum sector.

Nigeria, US advance high-level talks over visa restrictions (Punch)

PETROAN spokesman opposes NNPC's retention of P'Harcourt refinery (Punch)

FG boosts local energy supply chain (Punch)

Policymakers, regulators commit to sustaining Nigeria's energy future (Punch)

Travelling to US to give birth for citizenship illegal - US Mission (Punch)

NUPRC Publishes Concession Status of 243 Oil Blocks, Says No Asset Abandoned (ThisDay)

Shettima: We Are Investing in MSME to Create Jobs, Reduce Poverty, Increase GDP (ThisDay)

Expected Impact Of GDP Rebasing On SMEs In Nigeria (ThisDay)

FG to launch Nigerian Industrial Policy to boost manufacturing and cut raw material exports (Nairametrics)

Nigeria's money supply drops to N117 trillion in June 2025 (Nairametrics)

• Healthcare program is expected to benefit over 500,000 retirees initially
• Announcement follows protests by police retirees over inadequate pensions

President Bola Tinubu on Wednesday (Aug 5) ordered the immediate rollout of free healthcare for low-income retirees under the Contributory Pension Scheme (CPS), along with the implementation of overdue pension increases and a minimum pension guarantee. In a statement issued by his spokesperson Bayo Onanuga, Tinubu said these measures will ensure dignity and social protection for retirees. The healthcare program is expected to benefit over 500,000 retirees initially, with additional measures such as pension hikes and police pension improvements planned for rollout by Q4 2025.

The president's announcement comes amid recent protests by retired police officers over inadequate pensions and poor living conditions, with calls to remove the police from the CPS due to systemic flaws. The directive followed a briefing by the National Pension Commission (PenCom) director-general Omolola Oloworaran, who was instructed by the president to urgently resolve the longstanding issue of police pensions. Many CPS retirees from the informal sector or low-grade roles receive small monthly pensions due to modest contributions during their working years.

According to the presidency's statement, director-general Oloworaran also gave an update on steps being taken to protect pension funds against inflation and she detailed upcoming reforms aimed at improving retiree welfare and broadening pension coverage.

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• Capital inflows were driven by portfolio investments into money market instruments
• Q1 inflows are the highest since Q4 2021
• Capital flows mostly go into banking, followed by financing
• Oil and gas sector inflows have remained weak

Nigeria's imported capital rose by 67.1% y/y to USD 5.64bn in Q1, boosted by higher portfolio investment according to data released by the stats office. On a quarterly basis, inflows increased by 10.9% compared to USD 5.09bn recorded in Q4 2024. The Q1 outcome marks the highest level of inflows since Q4 2021 and the highest level of portfolio investments since Q4 2019. The return of portfolio investors is largely driven by the government's easing of foreign exchange controls. Portfolio investment accounted for USD 5.2bn or 92.25% of the total in Q1, followed by other investments at USD 311.17mn (5.52%). Foreign direct investment was the smallest contributor, with USD 126.29mn (2.24%).

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Analysts warn that Nigeria's heavy reliance on short-term investments, rather than long-term productive capital, poses risks to economic stability. For sustained growth, they recommend attracting more durable investment especially FDI. Looking at the capital inflows by business type in Q1, the banking sector attracted the highest capital inflows (USD 3.13bn or 55.4% of the total), followed by the financing sector with USD 2.1bn (37.18%). The financing sector recorded the biggest improvement which saw capital importation increase from USD 879.2mn in Q4 and USD 294.6mn in Q3.

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The manufacturing sector share of total capital importation fell from 5.68% in Q1 2024 to 2.3% in Q1 2025. Experts link the decline to the continued effects of economic reforms introduced in 2023 and 2024, including forex unification and rising energy costs. These reforms weakened consumer demand and led to reduced investment, with unsold goods hitting record highs. Oil and gas sector inflows remained very weak in Q1. The UK accounted for the highest capital importation by country of origin at 65.3%, followed by South Africa (8.9%) and Mauritius (6.99%).

• Textile, leather, shirmp and jewellery to be hurt the most
• Jewellery exports are seeing orders put on hold
• Apparel industry likely to layoff people

Indian exporters are bracing for a sharp decline in shipments to the US following President Donald Trump's decision to impose an additional 25% tariff on Indian goods, raising the total duty to 50%. Industry bodies and analysts warn the move could cut India's US-bound exports by up to 50%, dealing a blow to several labour-intensive sectors already grappling with global demand weakness.

The escalation, which takes effect in two phases-August 7 and August 27-has triggered widespread concern across India's export ecosystem. The new rate applies only to Indian imports as a penalty for continued Russian oil purchases, making India the only major economy to be singled out by Washington under this justification. The US remains India's top export destination, accounting for nearly USD 87bn of India's USD 132bn bilateral trade in 2024-25.

According to GTRI estimates, major export segments facing steep effective duties now include knitted garments (63.9%), woven garments (60.3%), made-ups (59%), carpets (52.9%), gems and jewellery (52.1%), organic chemicals (54%), and machinery (51.3%). Electrical goods, leather, shrimp, and furniture are also exposed.

Industry executives say the impact will be immediate and severe. Apparel, footwear, and seafood exporters are already reporting order cancellations and margin pressures. The US accounts for 32% of India's global shrimp trade. The Confederation of Indian Textile Industry called the development "a huge setback" and warned of lost orders and layoffs. The apparel sector alone employs over 45mn workers and contributes nearly USD 10bn to US exports annually. US buyers have already put jewellery shipments on hold due to the rising landed costs, and absorbing this cost escalation is not viable for MSME exporters.

Exporters say the competitive gap with other Asian suppliers has widened. Bangladesh, Vietnam, and Cambodia now face 20% or lower tariffs, compared to India's 50%. India's garment exporters, who had recently gained market share-rising to 6% of US apparel imports in 2024-now face the risk of a reversal. The Confederation of Indian Industry urged the government to revive the Interest Equalisation Scheme with a five-year commitment and direct fiscal support to affected sectors. Others called for export market diversification and expedited trade deals.

Talks for a bilateral trade agreement with the US are ongoing, but New Delhi has refused to concede on agriculture, dairy, and genetically modified goods-red-line sectors with deep domestic sensitivities. Officials hope to conclude the first phase of a trade pact by November, but the outlook remains uncertain.

RBI keeps repo rate unchanged at 5.5% (Economic Times)

India-US spat over trade and oil threatens wider fallout (Economic Times)

India will take actions necessary to protect national interests: MEA reacts to Trump's 'unfair' 25% additional tariff (Economic Times)

India slams US 25% tariff as 'unfair, unjustified and unreasonable' (Business Standard)

Not worried about bank savings being put into equities: RBI guv Malhotra (Business Standard)

India refiners wait for govt order on Russian oil purchases: Report (Business Standard)

Textile industry seeks export incentive to minimise US tariff impact (Business Standard)

Indian exporters on alert as US 50% tariff threatens key sectors such as Leather, Gems and Jewellery (Financial Express)

Trump's additional 25% tariffs may dent India's FY26 growth by 0.4% (Economic Times)

• Government has reaffirmed that it will take necessary steps to safeguard national interests
• India joins China as primary target of Trump's trade policy
• New Delhi could respond with retaliatory measures

In a sharp escalation of trade tensions, US President Donald Trump has signed an executive order imposing an additional 25% tariff on Indian imports, specifically citing New Delhi's continued purchases of Russian oil. The new measure, effective August 27, raises the total tariff burden on most Indian goods entering the US to 50%-the highest rate currently imposed on any major US trading partner outside of China.

The White House framed the move as a punitive step to dissuade countries from supporting Russia's wartime economy, arguing that India's crude imports and subsequent refined fuel sales indirectly finance Russia's military campaign in Ukraine. "India's actions directly undermine the national security and foreign policy interests of the US," the order stated.

The tariff hike affects an estimated 54% of India's USD 91bn merchandise exports to the US, with high-exposure sectors including apparel, gems and jewellery, and engineering goods. Pharmaceutical and energy products remain exempt, but the White House has hinted that further reviews are underway.

India's Ministry of External Affairs called the move "unfair, unjustified and unreasonable," emphasizing that energy imports are driven by domestic market needs and aimed at securing affordable energy for 1.4bn people. The ministry added that India's crude sourcing is a matter of economic sovereignty, not geopolitics, and reaffirmed its right to take all necessary steps to safeguard national interests.

The executive order comes amid a broader breakdown in bilateral trade talks, which have stalled over US demands for agricultural market access and digital trade rules. With this tariff escalation, India joins China as a primary target of the Trump administration's retaliatory trade policy.

While the US remains India's largest export destination, the new tariff regime may prompt Indian exporters to accelerate diversification efforts and seek deeper access into European and ASEAN markets. However, global trade conditions remain fragile amid rising protectionism and geopolitical realignments. Further retaliatory or compensatory measures from New Delhi remain a possibility, in our view.

• Next Policy Meeting: Sep 9 -Oct 1
• Current Policy Rate: 5.50%
• Last Decision: Hold (Aug 6, 2025)
• Our Forecast: Hold
• Rationale: After a cumulative 100bps easing since February, the RBI held its rate in August, and is likely to continue with a pause. RBI has announced that future rate movements will be aligned with macroeconomic fundamentals and latest data.

At its August meeting, the Reserve Bank of India's Monetary Policy Committee (MPC) held its repo rate stable at 5.5%. This follows a deeper-than-expected 50bps rate cut in June. The SDF and MSF remained stable at 5.25% and 5.75%, respectively. The MPC decision was unanimous, signalling that the previous cuts had not fully been transmitted through the system. The MPC highlighted that while growth support remains on the agenda, future easing will be more measured.

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Inflation Outlook

The disinflationary trend has strengthened. CPI inflation eased to 2.1% in June, down from 2.82% in May, marking the lowest level since January 2019. Food inflation turned negative for the first time in over five years, with rural and urban food prices falling by 0.92% and 1.22%, respectively. This trend was driven by declining prices in vegetables, pulses, cereals, milk, and spices, aided by a strong monsoon and high agricultural output. Q1 inflation was below the RBI target at 2.7% (RBI estimate was 2.9%). In the latest meeting, the RBI has revised the inflation forecast down to 3.1% in FY26. However, the central bank mentioned that the inflation is likely to firm in the last quarter of FY26.

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Growth Momentum

India's Q4 FY25 GDP growth came in at 7.4% y/y, bringing FY25 full-year growth to 6.5%, in line with RBI and NSO projections. Key growth drivers included construction (10.8%), public services (8.7%), agriculture (5.4%), private consumption (6%), and investment (9.4%).

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The composite PMI for July rose to 61.1, with the services PMI at 60.5 and manufacturing PMI at 59.1, showing strong expansion. However, industrial output growth slowed to 1.5% in June, indicating a patchy recovery across sectors. On the other hand, agriculture is expected to have a spectacular year given the early arrival of the southwest monsoon and increased acreage this sowing season. Worth noting is that the recent income tax exemptions will also boost private consumption over the course of the year and provide buttress to the economic momentum. GST collections remained strong at INR 1.74tn in June, reflecting continued domestic demand.As a consequence, it is likely that the RBI would wait to assess the impact of the 100bps rate cut before cutting rates.

External and Financial Conditions

India's external position remains comfortable. The current account posted a surplus of USD 13.5bn (1.3% of GDP) in Q4 FY25, and FX reserves stood at USD 699.7bn as of July 4, despite a weekly drop of USD 3.05bn. This still covers over 11 months of imports. Liquidity conditions have entered surplus mode, aided by the RBI's cumulative liquidity injection of INR 9.5tn since January and the phased 100bps CRR cut (to 3% by November). FX inflows and reduced currency leakage have also helped improve liquidity metrics.

On the currency front, the INR/USD stands at 87.2, reflecting renewed pressure from a wider trade deficit (USD 23bn in June) and rising imports from China and the US. Heightened global tariff tensions and US reciprocal duties are key watchpoints. President Trump's latest remarks around imposing a penalty on India for importing Russia crude alongside the imposition on 25% tariff will weigh on growth and the external sector. The INR is expected to remain under pressure in the near.

Conclusion

Following 100bps of easing in the first half of 2025, the RBI is expected to extend its from August into October. Inflation is running well below target, real rates are neutral, and growth is healthy - but global fragmentation, sticky services inflation, and trade volatility warrant caution. Governor Malhotra's comments that future actions would be "calibrated and data-driven" suggest the RBI is entering a wait-and-watch mode. We expect the central bank to hold through Q3, resuming action only if growth deteriorates or inflation slips further below the RBI's comfort band.

Further reading

Last MPC decision

Minutes of the Monetary Policy Committee Meeting (August)

RBI Forward Looking Surveys

Calendar of MPC meetings

• Prabowo is happy with ministers' performance
• We suspect further slowdown in free meal programme rollout may lead to reshuffle

President Prabowo Subianto rejected rumours about a cabinet reshuffle, local media reported. Speaking at a press conference after a cabinet meeting, he said he was happy with his ministers' performance and saw no reason for a reshuffle.

Several senior ministers also dismissed the notion, among them infrastructure minister Agus Harimuriti Yudhoyono (AHY), food minister Zulkifli Hasan and tourism minister Widiyanti Putri Wardhana. AHY said that the cabinet achieved good progress, while the latest GDP growth print of 5.12% y/y in Q2 was a positive sign.

Overall, rumours of a cabinet reshuffle resurface every couple of months, but so far, we doubt Prabowo will implement any changes. Potential further slowdown in the rollout of the free meal programme, his flagship endeavour, could, though, lead to a reshuffle late in 2025, in our view.

• BI securities held by private sector, cash in bank vaults decline
• Supply-side pressure on CPI inflation to remain low

Primary money supply (M0 adjusted) growth eased to 7.0% y/y in July from 8.6% y/y in June, according to Bank Indonesia's data. This was the slowest adjusted M0 growth since May 2024. Base money (M0) remained flat y/y, slowing from a 2.4% y/y expansion in June.

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The slowdown in the adjusted M0 growth was driven by a decline in cash in bank vaults, as well as a dip in the BI securities held by the private sector. On the other hand, adjusted commercial banks' demand deposits at BI rose at a stronger pace.

Overall, the slowdown in M0 adjusted growth suggests that supply-side pressure on consumer prices will remain low. Moreover, the broader component M2 growth is also likely to ease further, in our view.

• Reserves fell m/m for the first time in three months
• Monthly decline driven by BI interventions, govt foreign debt repayment

The official reserve assets rose by 4.5% y/y to USD 152.0bn at end-July, according to Bank Indonesia's data. This was the slowest annual growth since Jun 2024. In monthly terms, the official reserve assets fell by 0.4% m/m, declining for the first time in three months.

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The monthly decline was driven by BI interventions to stabilise the rupiah, as well as government foreign debt repayments. The reserves now cover 6.3 months of imports and 6.2 months of imports and external debt servicing, which is well above the 3-month international standard.

Overall, despite the slight decline, official reserves have been fluctuating in very tight range over the last four months. We remind that forex reserves peaked at USD 157.1bn at end-March.

• Motorbike sales have been declining since Nov 2024
• Demand for consumer durable goods may ease in H2

Domestic motorbike sales fell by 2.0% y/y to 587,048 units in July, according to data from the Indonesian Motorcycle Industry Association (AISI). The contraction deepened from just a 0.3% y/y decline in June. Still, motorbike sales fell for the fifth month in a row, while they have increased only once in the current downward trend, which started in Nov 2024.

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On the other hand, motorbike exports also fell by 1.9% y/y to 50,042 units in July, declining for the first time in 12 months. As a result, total motorbike sales (domestic and exports) fell by 2.0% y/y in July, falling for the first time in three months.

Overall, the falling motorbike sales suggest that demand for consumer durable goods is declining, suggesting private consumption may also slow down in H2, in our view.

Indonesian Gov't Designates Five New International Airports (Tempo)

US Tariffs to Push Investors to Relocate to Indonesia: Chatib Basri (Jakarta Globe)

Prabowo Happy With Ministers, Sees No Need for Cabinet Reshuffle (Jakarta Globe)

Bahlil's grip over Golkar tested (The Jakarta Post)

Indonesia's food production remains strong, safe: Prabowo (Antara News)

Indonesia's downstreaming attracts African, South American interest (Antara News)

5.12% Growth Sparks Public Questions, BPS Proposed Independent Audit (Koran Jakarta)

Misgivings in NA over haste to oust PTI leaders (Dawn)

'Human actions' led to 15pc heavier rains this year (Dawn)

Currency crunch as govt pushes dollar down (Dawn)

Govt moves to reform bankruptcy law (Dawn)

Record food imports, skyrocketing prices hit masses (Dawn)

Army chief heads to US, again (Dawn)

Govt restricts FBR arrest powers (Express Tribune)

Pakistan warns India of deep strikes (Express Tribune)

DG ISPR dispels rumours of Field Marshal Munir vying for presidency (Express Tribune)

PTI won't recontest disqualified seats: Imran (Express Tribune)

PHC grants protective bail to Shibli Faraz, Zartaj Gul and others (The News)

KSE-100 hits record high of 145,088 with 2,051-point surge (The News)

Agri census launched: Number of farm households increases to 11.7m (Business Recorder)

• Imports rose at a much faster pace than exports
• Trade deficit expected to widen further in FY26

Pakistan's goods trade deficit rose by 44.2% y/y to USD 2.75bn in July, according to PBS data. This was driven by a sharp 29.2% y/y surge in imports, reaching a three-month high of USD 5.45bn, as strengthening economic activity boosted demand for foreign goods. Meanwhile, exports remained resilient, soaring by 16.9% y/y to USD 2.70bn, the highest since January.

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The goods trade deficit is expected to widen further in FY26, after rising by 9.3% y/y to USD 26.3bn in FY25. Last week, the State Bank of Pakistan said that a pickup in economic activity, a slowdown in global trade, and unfavourable export prices, particularly of rice, are likely to put pressure on the trade account. As a result, it projected the current account to turn negative and post a deficit in the range of 0 to 1% of GDP in this fiscal year, compared to a 0.5% surplus in FY25.

• Agriculture, industry and services all increase y/y
• Main expenditure components show lower growth in Q2, except for household final consumption
• GDP expands by 5.4% y/y in H1, which compares with govt target of 5.5-6.5% for 2025

The GDP increased by 5.5% y/y in Q2, accelerating from 5.4% y/y growth in Q1, the statistics office said on Thursday. The latest reading is above the 5.4% growth expected in a Reuters poll. In seasonally adjusted terms, the GDP increased by 1.5% q/q in Q2, after rising by 1.2% q/q in Q1. The Philippine economy expanded by 5.4% y/y in H1. The government's current economic growth target for 2025 is the range 5.5-6.5%.

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On the supply side, the main contributions to the second-quarter annual GDP growth came from wholesale and retail trade; repair of motor vehicles and motorcycles (up 5.1% y/y); public administration and defence, compulsory social security (up 12.8% y/y); and financial and insurance activities (up 5.6% y/y), the statistics office said. In Q2, positive y/y growth was reported for all three main sectors, including agriculture, forestry, and fishing (up 7.0%); industry (up 2.1%); and services (up 6.9%).

On the expenditure side, a comparison of Q2 and Q1 shows that the acceleration of real GDP growth was driven by higher growth of household final consumption expenditure and a sharp slowdown of the imports of goods and services. Household final consumption expenditure rose by 5.5% y/y in Q2, speeding up from 5.3% y/y in Q1. Imports of goods and services rose by 2.9% y/y, following a 10.3% y/y expansion in Q1.

Meanwhile, the other main expenditure components registered slower expansions in Q2. The y/y growth decelerated for government final consumption expenditure (to 8.7% in Q2 from 18.7% in Q1); gross capital formation (to 0.6% from 4.8%); and exports of goods and services (to 4.4% from 7.1%). With regard to exports, it should be noted that the slowdown was driven by a reversal to a y/y decline in the exports of services, whereas the performance of exports of goods improved in Q2.

All in all, the second-quarter GDP growth is in line with expectations. Therefore, we still expect continued monetary policy easing. The central bank reduced the policy interest rate by 25bps to 5.25% in June. The next Monetary Board meeting is scheduled for Aug 28, and we predict another 25bp key rate cut.

Philippine GDP expands by 5.5% in second quarter (INQUIRER)

PSA keeps Q1 GDP growth unchanged (BusinessWorld)

Peso up on BSP intervention signals (BusinessWorld)

2026 gov't borrowing plan, mix likely steady (BusinessWorld)

Term deposit yields mixed on weak demand due to ongoing RTB offer (BusinessWorld)

Marcos: Budget can fund priorities if corruption is stopped (Philippine News Agency)

BSP readies 'stronger safeguards' against online gambling (INQUIRER)

Senate votes to archive impeachment case vs. VP Sara (Philippine News Agency)

No war prep, but China tensions push Philippines to ready defenses - Marcos (Philstar)

Marcos: US will surely come to aid PH should it face security challenges (INQUIRER)

PH in talks with India to acquire more BrahMos missiles - PBBM (Philippine News Agency)

• There are both downward and upward growth revisions in the supply-side data and the data across expenditure components
• GDP data for Q2 to be released on Thursday

The statistics office has revised its GDP estimates and has maintained the first-quarter GDP growth rate at 5.4% y/y. On the supply side, the office noted downward revisions of the annual growth for utilities (by 1.1pps to 2.7%); financial and insurance activities (by 0.3pps to 6.9%); and information and communication (by 0.9pps to 4.7%). Notable upward revisions involved manufacturing (by 0.2pps to 4.3%); real estate and ownership of dwellings (by 0.4pps to 3.7%); and professional and business services (by 0.2pps to 5.2%).

With regard to expenditure components, notable upward growth revisions were made for gross capital formation (by 0.8pps to 4.8%); gross fixed capital formation (by 0.6pps to 6.5%); exports of goods and services (by 0.8pps to 7.1%); and imports of goods and services (by 0.4pps to 10.3%). The growth rates of exports and imports of services were both revised down by 0.9pps, to 6.3% and 11.2%, respectively. The new y/y growth rates of exports and imports of goods are 8.1% (up by 2.9pps) and 10.0% (up by 0.9pps), respectively.

Meanwhile, the statistics office revised the growth of net primary income from the rest of the world to 22.0% from 24.6%. The GNI is now reported to have expanded by 7.2% y/y in Q1, down from an initial estimate of 7.5% y/y.

GDP data for Q2 will be released on Thursday. The Philippine government targets GDP growth in the range 5.5-6.5% this year.

• Inflation for the year is lower than forecasts, averaging 2.3% in Q2, primarily due to rising food and rent prices, but still below the 3.0% target
• Economic growth in Q2 is consistent with the 3.4% growth reported in Q1, supported by increased consumption, investment, and service exports
• Lending to the private sector grew by 15.4% in Q2, focusing on business investments and household consumption, while financial markets remain liquid and favorable.
• The BoA projects continued growth in the medium term, with inflation expected to reach the 3.0% target by H1 2026, but highlights risks from trade barriers and geopolitical tensions

The Bank of Albania's supervisory council decided to maintain the key interest rate at 2.5%, BoA governor Gent Sejko announced. Following the meeting, Sejko noted that the inflation rate for this year has been lower than the central bank's forecasts, attributed to reduced business profit margins, ongoing positive supply shocks, and a quicker-than-expected decline in inflation within the Eurozone. In Q2, CPI inflation averaged 2.3%, reflecting a slight increase from Q1 but remaining below the BoA's 3.0% target. The central bank indicated that the rise in inflation was primarily driven by increases in food and rent prices, while inflation for other items remained relatively stable.

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The BoA estimates that economic growth in Q2 was consistent with the 3.4% growth reported in Q1. Sejko stated that growth was supported by increased consumption, investment, and service exports, leading to expansion in the construction and services sectors, while the agricultural and industrial sectors contracted during the first quarter. From a macroeconomic perspective, growth has been bolstered by strong private sector balance sheets, positive consumer and business confidence, rising tourism revenues, and favorable financing conditions. Sejko emphasized the role of the central bank's prudent monetary policy in enhancing these financing conditions. Over the past four quarters, the easing of the monetary policy stance has lowered financing costs for the banking sector and reduced yields on 12-month treasury bills, which influence lending interest rates. Additionally, the normalization of inflation expectations has stabilized long-term interest rates and promoted effective financial market functioning.

The BoA's increased presence in the domestic foreign exchange market has helped mitigate upward pressures on the exchange rate, contributing to its stability, Sejko noted. Financial markets are characterized by ample liquidity, reduced risk premiums, and a positive lending environment. Lending to the private sector continued to grow in Q2, with a loan portfolio growth rate of 15.4%, slightly down from Q1, but still adequate to meet the funding needs of businesses and households. Lending remains focused on business investments and household consumption and housing purchases, according to Sejko.

Looking ahead, the BoA projects continued economic growth in the medium term, driven by further consumption, investment, and tourism exports, which are expected to lead to increased employment and wages. Inflation is anticipated to reach the 3.0% target in H1 2026, supported by a better balance of supply and demand, stabilization of international market inflation, and a more stable exchange rate. However, Sejko cautioned that the future risk landscape remains complex, with increasing trade barriers and geopolitical tensions posing significant uncertainties that could negatively impact economic performance and price levels.

• The Bank of Albania granted preliminary approval for Ziraat Bank to operate in Albania, marking the licensing process's first stage
• Ziraat Bank's entry increases the number of commercial banks in Albania to twelve, reflecting renewed interest in the banking sector
• Fully owned by the Turkish State Wealth Fund, Ziraat Bank is Turkey's largest bank, with total assets of approximately USD 133.0bn and a presence in multiple countries

The Bank of Albania's (BoA) supervisory council granted preliminary approval of the foreign bank branch Ziraat Bank's license, enabling it to conduct banking and financial activities in the Republic of Albania. According to the law on banks in the republic of Albania, the licensing process for both banks and foreign bank branches consists of two stages - preliminary approval and the final granting of the license. The law stipulates that a foreign bank branch receiving preliminary approval must meet all necessary conditions within twelve months in order to obtain a license for banking operations in Albania. During this period, Ziraat Bank must fulfill several key requirements, including the payment of required capital, hiring necessary staff, establishing technical and organisational conditions for banking activities, as well as securing premises for operations.

Since 2015, the Albanian banking sector has experienced consolidation, with the number of commercial banks decreasing from sixteen to eleven between 2015 and 2022. The licensing of Ziraat Bank marks a significant development in the banking market, increasing the number of banks back to twelve. Ziraat Bank's entry reflects growing interest in Albania's banking sector, following several years of positive trends characterised by high credit growth and improved profitability. Ziraat Bank, a state-owned institution, is fully owned by the Turkish State Wealth Fund and has its origins in the 19th century, having been established in 1863 as a cooperative fund for agriculture before becoming a bank in 1888. As Turkey's largest bank, Ziraat holds about 16.5% of the market share, with total assets estimated at USD 133.0bn by the end of 2024. At the group level, including its other banks and companies, Ziraat reports total assets of approximately USD 147.0bn. In addition to its operations in Turkey, Ziraat Bank has a presence in several countries, owning banks in Germany, Russia, Kazakhstan, Uzbekistan, Georgia, Azerbaijan, Bosnia and Herzegovina, Montenegro, and Kosovo. It also operates branches in England, Iraq, Greece, Bulgaria, Saudi Arabia, Turkish Cyprus, and Bahrain, and maintains representative offices in the United Arab Emirates and Egypt.

• The investment will be funded by the state budget
• Key initiatives include providing 5,500 laptops and expanding SMART labs in all schools
• The plan aims to enhance broadband access and digital competence to reduce the urban-rural digital divide

By 2029, Albanian public schools are set to receive fast internet, smart labs, and laptops for educational purposes, according to a draft decision released by the ministry of education and sports. The draft decision was released for public consultation on the Digital Education Action Plan for 2025-2030, which aims to establish a digitalised education system. Key initiatives include the expansion of the SMART-lab network across all primary and secondary schools, a project supported by the WB, with an estimated total cost of ALL 3.5bn. Funding for this project is scheduled to be distributed in three phases across 2026, 2027, and 2028, with approximately ALL 1.2bn allocated for each year.

The plan also includes the procurement of 5,500 portable computers for students and teachers as part of the multiannual operational program Digital Economy and Society 2024-2027, funded by IPA III resources. The initiative will cost ALL 550.0mn and is planned to be implemented in two phases during 2026 and 2027, with ALL 275.0mn allocated each year. The state budget will fully finance this project. Additionally, the plan aims to enhance access to broadband and high-speed Wi-Fi networks to ensure stable connectivity in all pre-university and higher education institutions. This initiative has an estimated cost of ALL 325.0mn, to be evenly distributed over 2026, 2027, and 2028, and will also be financed entirely by the state budget. Beyond infrastructure investments, the plan emphasises the development of digital competence standards, the enhancement of teachers' professional capacities, and the establishment of mechanisms for monitoring and evaluating progress in digitalisation. The ministry of education states that the plan seeks to reduce the digital divide between urban and rural areas while supporting sustainable education development goals, in alignment with the EU's strategic priorities. The current low level of digital infrastructure in schools has contributed to poor performance by Albanian students in global PISA assessments. During the pandemic, both students and teachers faced challenges in transitioning to online learning, resulting in greater learning losses compared to other countries with similar development conditions.

• Government debt amounts to 49.0% of GDP
• Share of domestic debt equals 51.8%

According to data published by the Ministry of Finance, government debt rose from USD 13.1bn in 1Q25 to USD 13.3bn in 2Q25. The increase was exclusively driven by domestic debt, which climbed by USD 309mn to USD 6.9bn. External government debt edged down by USD 36mn to USD 6.4bn. As a share of GDP, public debt declined from 49.3% in 1Q25 to 49.0% in 2Q25. Despite the quarterly increase, the medium-term trend has been one of a declining share of public debt in GDP. It peaked at 65.6% of GDP in 1Q21 and the subsequent decline has been facilitated by a fast-growing economy and stronger dram.

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• Vucic says Serbia must stand with its people and Republika Srpska
• If parliament decides to call referendum, it could occur as early as mid-September

Serbian President Aleksandar Vucic has called for calm, rational behaviour and restraint from escalation after the Central Election Commission (CIK) of BiH stripped RS President Milorad Dodik of his mandate. In an interview with TV Prva, Vucic said that BiH was becoming a hotbed of uncertainty and that Serbia must stand with its people and Republika Srpska. He emphasised that Dodik was elected by the people of Republika Srpska and was not a crisis generator but rather responded to events. Vucic reassured that Serbia will do its best to preserve peace and stability. Serbia's position is very important for the RS leadership, which coordinates its moves with Belgrade.

We remind that the Serbian leadership has already rejected and strongly condemned the second-instance verdict against Dodik, who was sentenced to one year in prison and a six-year ban from holding the office of RS president for disregarding acts of High Representative Cristian Schmidt and the state-level Constitutional Court. Dodik announced on Aug 6 that the entity will hold a referendum on whether he should stay in office. In reaction, opposition leader Jelena Triivic said that she will propose the presidency of her People's Front to reject support for a potential referendum, saying it would only deepen the political crisis. The other opposition parties are yet to react.

ATV reported that under the current Law, the referendum is conducted by the Republican Election Commission (RIK). The RIK has 30 days to six months to organise a referendum once the parliament decision takes effect. Given these legal deadlines, a referendum on protecting the people's right to keep their chosen president in office could occur as early as mid-September. A proposal to call a referendum can be submitted by the President, the government, at least 30 MPs or at least 10,000 voters.

Opposition leader Trivic: We will reject Dodik's move for referendum, because it will deepen crisis (Dnevni Avaz)

Although he said he did not recognize Court and that verdict was political: Dodik requests redemption of his prison sentence (Dnevni Avaz)

BiH Foreign Minister Konakovic announces isolation of ambassadors and consuls who violate BiH Constitution (Dnevni Avaz)

DNS and NPS on CIK's decision: Fight against injustice and force (Nezavisne Novine)

Serbian President Vucic comments on decision of CIK BiH to strip Dodik of his mandate (Nezavisne Novine)

Dodik: I will listen to people in referendum (Nezavisne Novine)

SDP offers help to SDS and PDP to form new majority in RS parliament (Nezavisne Novine)

• Parliament to decide on referendum

RS President Milorad Dodik stated today that the people would decide whether he should stay on the post. After a meeting with the coalition partners, Dodik elaborated that people will be asked whether they agree to the destruction of the RS Constitution, adding that the parliament will decide on the referendum. He said that according to the Constitution, the president's mandate ends only through resignation or recall. The RS President rejected the authority of the Central Election Commission (CIK) of BiH to revoke his mandate, calling their decisions a violation of the Constitutions of both Republika Srpska and BiH.

The reaction of the ruling coalition comes after CIK BiH decided today to strip RS President Dodik of his mandate. The decision will become legally binding only after a two-day appeal deadline has passed. On Aug 1, the Appellate Division of the Court of BiH upheld the first-instance verdict against Dodik, who was sentenced to one year in prison and a six-year ban from holding the office of RS president for disregarding acts of High Representative Cristian Schmidt and the state-level Constitutional Court.

• Retail sales growth remains below average from H2/2024
• Deceleration largely driven by deepening 0.5% y/y decrease in food sales, which we attribute to higher food inflation
• Non-food retail sales growth eases slightly to 11.7% y/y

Retail sales growth decelerated to 6.8% y/y in June, from the 7.2% y/y increase in May, the stats office (NSI) reported. The retail sales growth remains slower compared to H2/2024, largely due to the more elevated inflation since the beginning of 2025, in our view. The BNB has recently projected private consumption to remain the main economic growth engine in 2025, supported by rising wages and low interest rates on consumer loans, but the downside risks stemming from inflation and general uncertainty remain in place, in our opinion. We recall that earlier in the year, the finance ministry forecast a moderate slowdown in domestic consumption this year. In seasonally-adjusted terms, retail sales rose by 0.6% m/m, at a slower pace from their 2.2% m/m increase in May.

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The deceleration in the retail sales growth largely reflected a deepening decline in food sales. Food sales fell by 0.5% y/y, for a second month in a row after the 0.1% y/y drop in May. Inflation has been particularly notable in the food segment, which should be the main explanation for the lower sales, in our view. The government has launched different measures, including the expansion of the regulatory bodies' controlling functions, to prevent unjustified price hikes before the euro adoption, but their effect remains to be seen. In general, we think that the upward dynamics in food prices will continue in the next months, weighing on food sales.

Non-food sales excluding fuels rose by 11.7% y/y in June, easing from their 12.3% y/y increase in May. The slowdown was on the back of the textile, clothing and footwear segment, as well as the audio and video equipment, hardware segment. Conversely, sales of pharmaceuticals and cosmetics, computer, peripheral units and software, fuel, ICT equipment rose by faster pace, confirming an overall positive outlook to the non-food sales in the short run. Fuel sales growth speeded to 9.7% y/y, on the back of a negative base from the previous year. The negative base will stay in place until December, so fuel sales should remain stable until end-2025, in our opinion.

Third bridge on Danube river - in 2030 at earliest (Capital Daily)

Bulgargaz reduces its loss to BGN 32mn, but unlikely for long (Capital Daily)

Sofia Airport concessionaire against resumption of payment of fees deferred due to COVID pandemic (Sega)

State is bringing heavy administrative hammer down on business (Sega)

WCC starts petition against sale of state properties (24 Chasa)

Sociologist Parvan Simeonov: There is this constant creation of feeling that there is no one else to govern already fifteen years (24 Chasa)

Slowdown in economic activity and growth in wages and inflation, BNB reports (Trud)

We can withdraw up to ten times for free from ATM (Trud)

• New retail chain reportedly to aim to provide food products at more accessible prices and to support local producers
• Anonymous media sources comment that MRF leader Delyan Peevski insisted on idea, while senior ruling party GERB disliked it, but eventually gave up to Peevski's pressure
• Initial capital of the new state-owned enterprise set at BGN 10mn, many see idea as another scheme for public funds abuse

The government approved MRF leader Delyan Peevski's controversial idea for the setting-up of a state-owned food retail chain, reportedly aiming to sell mostly Bulgarian-made products and goods with a minimum markup of up to 10%, local media reported. The initiative was motivated with the necessity of providing accessible food products to the Bulgarian citizens and support to the local producers, as well as guarantee socially-oriented price-setting in particular in the poorer regions. The agriculture ministry will be the 100% owner of the company and a BGN 10mn initial capital will be allocated. The so-called shop for the people will use the existing infrastructure of the Central Cooperative Union, which disposes of over 700 facilities in the entire country.

Agriculture minister Georgi Tahov assured that the first shop from the new retail chain will open in Plovdiv in the autumn. So far, no economic motivation of the unusual project has been provided, nor information about the expected revenues and expenditure. Anonymous sources of the Mediapool news portal commented that senior ruling party GERB disliked the idea for the state-owned retail food chain, but Peevski reportedly threatened to pressure for the closure of the anti-corruption commission, which is a key condition for the EU funds absorption under the Recovery and Resilience Facility (RRF). The news portal's sources claimed that GERB leader Boyko Borissov did not believe that the new company will successfully offer lower prices to consumers, nor in the benefits for the Bulgarian farmers, which is why the realisation of the idea has been delayed so far. Another point of controversy has been the selection of members of the governing council of the new state-owned enterprise, with GERB, Peevski and junior ruling party BSP arguing over the distribution of influence in it.

Most of the criticisms have been focused on the possibility for infringement of EU rules, chaos and abuse of public funds. Ivaylo Mirchev, MP from opposition WCC-DB, called the new food retail chain another scheme of Peevski masked as fake social policy. He commented that GERB leader Boyko Borissov increasingly looked like a hostage to Peevski's interests and a simple observer of Peevski's successful actions to gain control over every institution and sector of the state.

• GDP growth to slightly slow down in Q2, net exports' contribution remains negative
• Private consumption is main driver of economic activity in 2025
• HICP inflation eases to 2.8% on average in Apr-May, but inflation to accelerate in H2

GDP growth eased to 2.9% y/y in Q1, from 4.1% y/y in Q4, while wage growth and inflation has accelerated, the latest Bulgarian National Bank's (BNB) economic review showed. In Q1, domestic consumption contributed the most to the economy - 8.8pps, while the net exports' negative contribution increased to -5.4pps. Private consumption rose by 9.0% y/y in real terms, supported by increases in employment and households' disposable income. The compensation per employee growth was 10.7% y/y in nominal terms and 6.5% y/y in real terms in Q1, reflecting the significant shortages of labour force and the price hikes in the public sector, the BNB said. Accordingly, growing domestic demand resulted in accelerating growth of imports of goods, while exports continued to decline.

The economic indicators in Q2 suggested that the q/q economic activity growth in Bulgaria will slow down from Q1, while the annual growth will stay close to that of the previous quarter, the BNB said. Domestic demand will remain the main engine of real GDP growth until the end of 2025 and the contribution of the net exports will stay negative.

HICP inflation reached 2.9% y/y in May, compared to 2.1% at end-2024, mostly on account of food and services. Rising unit labour costs, alongside strong private consumption have been the key pro-inflationary factors, enabling companies to pass on their higher production costs to the final consumers. Headline inflation decelerated to an average 2.8% in Apr-May, from 3.9% y/y in Q1, on the back of lower inflation in goods and services with administratively controlled prices and tobacco products, as well as a stronger fall in energy prices. However, the BNB expected consumer inflation to accelerate in H2, based on assumptions on the dynamics of international commodity prices, labour market developments, domestic economic activity and assumptions about the effects of the rise in some administratively set prices, the central bank also commented.

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• Deceleration driven by falling external producer prices, moderating of domestic PPI growth
• Energy PPI falls by 1.1% y/y, contributing strongly to the headline print slowdown
• Manufacturing PPI resumes declining, producer price growth in mining and utilities eases to 23.1% y/y and 3.3% y/y

Industrial PPI growth eased to 0.7% y/y in July, from 1.4% y/y in the previous month, according to the latest stats office figures. The deceleration reflected a 0.3% y/y decline in the external PPI, while the domestic PPI growth pace moderated to 1.2% y/y during the month. We think that if sustained in the next months, the easing industrial producer prices growth should have some mitigating impact on the headline CPI inflation, which accelerated to 4.1% y/y in July. In monthly terms, PPI growth went up by 0.5% in July, with the domestic PPI growth decelerating to 0.6% m/m, and the external producer price growth speeding to 0.3% m/m during the month.

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The sectoral breakdown showed that all the three main segments - mining, manufacturing, and utilities, contributed to the deceleration in the headline print in July. Mining PPI growth significantly slowed down, to 13.0% y/y, from the previous 23.1% y/y increase in June. Manufacturing PPI returned to the negative territory, falling by 0.5% y/y, after the one-off interruption of the declining trend in June. Utility PPI growth moderated to 3.3% y/y.

The data also showed that energy producer prices' dynamics was a key factor for the PPI growth deceleration. PPI growth of energy goods fell by 1.1% y/y after their 0.9% y/y increase in the previous month. Producer price growth of durable consumer goods fell for a third consecutive month by 0.1% y/y. Meanwhile, PPI of intermediate and capital goods decelerated, to 1.3% y/y and 2.7% y/y, respectively, while the PPI growth of non-durable consumer goods stood unchanged compared to June, at 1.4% y/y.

Excluding the energy prices, total industrial PPI increased by faster 1.5% y/y in July, and was flat m/m. We think the decline in energy producer prices was the result of the mitigation of the Iran-Israel conflict escalation from June.