• The amount was double the borrowing ceiling
• Borrowing costs remained stable, falling by 3bps when compared to February

The finance ministry borrowed CZK 10bn through a 26-week T-bill, according to auction data reported by the CNB. The amount was double the borrowing ceiling, as borrowing costs were lower than before. Thus, the finance ministry went for higher borrowing to take advantage, leading to the yield on this T-bill falling by 3bps compared to February when it was last on offer.

This puts gross T-bill issuance at 67% of the monthly borrowing ceiling, and the odds are it will be exceeded. There is no top-up to money market instruments, and the finance ministry doesn't usually purchase those into its portfolio. Moreover, there is no impact on gross financing needs, as the T-bill matures in August.

• The March month-on-month change was revised from an increase of EUR 1.2bn to a decline of EUR 3.1bn
• This is likely due to gold purchases being to the expense of EUR assets in Q1, as these fell by 1.2pps q/q to 48.2% of the total
• Gold reserves are now 6.9% of the total, and the CNB bought 2.5 tonnes in April alone, and 5 tonnes in Q1
• Official reserves covered 9.7 months of imports and reached 41.9% of GDP at end-April
• The CNB sold EUR 300mn in the local fx market in March, the monthly cap of its programme of unloading reserve earnings

The official reserves of the CNB rose by EUR 866mn (0.6% m/m) in April, adding up to EUR 152.4bn at the end of the month, according to figures from the central bank. This time around, the month-on-month change in March was revised heavily downwards, from an increase of EUR 1.2bn (0.8% m/m) to a decrease of EUR 3.1bn (2% m/m). We suspect this could be related to gold purchases, which were largely to the expense of EUR-denominated assets in Q1 2026, as it can be seen from the latest quarterly report on official reserves. In year-on-year terms, official reserves rose by EUR 15.1bn (11% y/y).

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Regarding the structure of official reserves, EUR-denominated assets were 48.2% of the total, lower by 1.2pps q/q. Meanwhile, gold reserves accounted for 6.9% of the total, or higher by 0.9pps q/q. Thus far, the CNB has been purchasing gold primarily to the expense of USD-denominated assets. However, these largely remained stable, at 27.9% of the total in Q1, up 0.1pps q/q. Still, the weight of USD assets fell by as much 2.1pps y/y, confirming that the CNB was selling these throughout 2025. Regarding gold reserves, the CNB purchased 2.5 tonnes in April and 5 tonnes in Q1, which was in line with its purchases thus far. Gold reserves were higher by 34.8% y/y in April by volume, and this is largely why profitability has remained high. Average return on reserve management was 8.07% as of end-March for the past 4 quarters, with the investment portfolio bringing 9.61%.

As a result, official reserves covered 9.7 months of imports as of end-April, though this ratio could be revised downwards when April trade data comes in. Reserves also accounted for 41.9% of GDP at end-April, though this is based on a relatively optimistic GDP projection, which we expect will be revised downwards soon.

The CNB sold EUR 300mn in the local fx market in March, according to fx trading data. This is still at the monthly cap of its programme on unloading earnings from reserve management. As it can be seen above, return on reserve management is still high, so these sales do not impact reserve levels. The CNB sold EUR 900mn in Q1, and EUR 3.5bn over the past 12 months. In contrast, official reserves rose by 1.38bn in Q1 and by EUR 11.8bn in the 12 months to March.

• Building construction was behind the increase, up by 5.8% y/y in March
• Still, the number of completed residential buildings kept falling, both in March and in Q1
• New building permits rose by 13.4% y/y in March, with residential permits rising by 18.8% y/y
• Wages in construction were up by 8.6% y/y in March, likely a one-off reflecting bonuses

Construction activity rose by 5.8% y/y (wda) in March, faster by 1.7pps m/m, according to figures from the statistical office. This was entirely due to building construction, which rose by 10.8% y/y, its strongest increase in the past 6 months. Meanwhile, civil engineering works decreased by 5.8% y/y, faster by 0.3pps m/m. In seasonally adjusted terms, construction activity was stronger by 3% m/m (sa), with building construction rising by as much as 4.8% m/m.

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Despite robust activity, the number of started residential projects fell by 5.5% y/y in March, and it decreased by 1.9% y/y in Q1. Completed buildings were fewer by 1.2% y/y in March, and by 1.9% y/y in Q1, showing that the process is still slow. Still, new construction did expand, as the area of new residential buildings was higher by 24.5% y/y in Q1, even though it fell by 5.1% y/y in March.

New building permits rose by 13.4% y/y in March, much faster than their increase of 6.6% y/y in February. Residential permits were higher by 18.8% y/y, and they provided the bulk of the increase. This makes it 8 consecutive months with uninterrupted growth for residential building permits, after more than 3 years of decline.

Employment in construction rose by 1.4% y/y in March, a solid indicator that activity is still growing and expected to grow. Employment has increased in the past 9 months, and construction firms are still looking for skilled workers. Nominal wages rose by as much as 8.6% y/y in March, though this could be a one-off, as this data includes remuneration bonuses. Even then, wages rose by 5.1% y/y in Q1, which is still a solid increase.

• Markets expected a surplus of CZK 19.8bn
• A base effect related to US tariffs on China in early 2025 is largely behind the improvement
• Rising oil and natural gas prices caused some deterioration, but the China effect was bigger
• Thus, we expect a much stronger deterioration in Q2, especially towards the end of the quarter

The external trade surplus added up to CZK 31.9bn in March (FOB/CIF), up 13.5% y/y, according to figures from the statistical office. The print beat market expectations considerably, as the surplus was anticipated to reach only CZK 19.8bn. In cumulative terms, the trade balance reported a surplus of CZK 73bn, lower by 4.4% y/y, as performance in February was particularly poor. The 12m-rolling trade surplus added up to CZK 206.1bn at end-March, improving slightly from end-February, but still on the lower side over the past 12 months. In seasonally adjusted terms, the trade surplus almost doubled compared to February, with exports rising by 0.4% m/m (sa), while imports falling by 1.7% m/m (sa).

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The improvement in the trade balance appears to be largely due to a base effect, particularly the introduction of US tariffs on China in early 2025, which led to a redirection of Chinese exports to Europe in early 2025. This was partially mitigated by the Iran war, which boosted oil and natural gas prices, and respectively caused a larger energy trade deficit. However, the impact of Chinese exports was so big that it largely negated higher energy prices. Yet, the base effect will likely weaken in Q2, which means the trade surplus will see a major deterioration. In any case, it was the reason trade with manufactured articles improved so much in March, almost matching trade with machinery & transport equipment, traditionally the strongest export sector.

In cumulative terms, there was a big increase in imports of parts & components, which is in line with much stronger purchasing activity due to the war in Iran. Local producers are trying to stock up, anticipating that production costs will increase, which has boosted the trade deficit in that area. On the other hand, the base effect related to Chinese exports was in play, as well as the lingering impact from ending imports of Russian oil in April 2025. Yet, both of these will expire soon, which means that the external trade balance will deteriorate visibly by the end of Q2.

Overall, we are still seeing some base effects in play that are temporarily preventing the trade deficit from a stronger deterioration. However, this will not last long, and we expect that May and June will be particularly poor performers. While we don't expect a trade deficit yet, surpluses will narrow noticeably in Q2, pushing the 12m-rolling surplus below 0.5% of GDP. Developments beyond that will largely depend on what happens in the Persian Gulf, and whether the conflict between the United States and Iran is resolved.

• Markets expected an increase of 1.9% y/y, likely based on strong industrial sentiment
• Output performance was a mixed bag, though major sectors like computer & electronics, automotive, and machinery & equipment performed poorly
• The chemical sector appears to be in a better shaper, and it had one of the strongest new orders
• Automotive new orders improved as well, but it doesn't appear enough to mitigate the impact of weak external demand
• We don't believe the Iran war has had a major impact on industrial production so far, which means the situation was less than rosy even before the conflict started
• Employment continued to shrink, down by 1.1% y/y, while nominal wages rose by 6.3% y/y in March and 5.7% y/y in Q1
• We see the outlook as unfavourable, even if the Iran war ends some time in May

Industrial output eased its growth to 0.9% y/y (wda) in March from 1.3% y/y in February, according to figures from the statistical office. The print was noticeably weaker than market expectations, which put industrial growth at 1.9% y/y. This could have been possibly due to pretty strong industrial sentiment for the month, though actual performance appears to misalign with it. Output fell by 0.2% m/m (sa), which does imply some deterioration, and it was manufacturing behind that fall, as it also decreased by 0.2% m/m (sa).

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Performance was a bit of a mixed bag, as the bigger part of the slowdown was due to repair & installation of machinery & equipment, which is a notoriously volatile chapter. Excluding that sector, headline industrial growth would have remained flat. Still, manufacturing output weakened even apart from repair activity, as it rose by 1.7% y/y in March, slower by 0.7pps m/m. Performance deteriorated in computer & electronics, the automotive sector, metal products (i.e. parts & components), machinery & equipment, and pharmaceuticals. Meanwhile, chemicals, the food industry, and electrical equipment mitigated that deterioration. The other source of mitigation was power generation, though it was through a smaller decline, at 4.9% y/y in March from 6.7% y/y in February. Power generation will likely have an upward push to industrial production in April, however, as net power consumption noticeably increased due to colder weather. Regarding the rest, we don't believe that the Iran war had a major impact, apart from oil refining, which is not reported in this release anyway. The main reason why industrial performance underwhelmed was slower-than-expected recovery in major economies, particularly Germany, where fiscal expansion has not produced the anticipated result.

New industrial orders eased their growth to 0.9% y/y (wda & wa) in March from 1.7% y/y in February. Again, the statistical office only provides series for both calendar and seasonally adjusted data, rather than the numbers in the press release, which are only calendar adjusted. While both export and domestic orders deteriorated, the bigger slump was in domestic orders, which fell by 1.2% y/y in March after rising by 0.4% y/y in February. As far as export orders are concerned, we would argue they have remained essentially flat, with local producers still trying to diversify export markets. Similar to output, performance was a mixed bag, as orders in the automotive industry rose steadily, but this was largely negated by orders in machinery & equipment. There was also further deterioration in orders for repair & installation, which implies the sector will again push down headline growth in Q2. The chemical sector appears to be doing fine, so it will likely keep reporting robust growth in the coming months.

Given weak demand, it is no surprise that employment in industry deteriorated again, falling by 1.1% y/y in March. However, nominal wage growth remained robust, at 6.3% y/y in March and 5.7% y/y in Q1. We expected that industrial wages once again rose slower than the national average, which implies that nominal wages will continue to increase steadily, especially now, when inflation expectations are rising again. Furthermore, the numbers confirm our assessment that job losses are still mostly through low-skilled positions, which tends to push wage growth upwards.

We expect industrial performance to remain subdued in Q2, with the Iran war starting to have an impact. However, we don't expect a major weakening until the end of the quarter, mostly due to a certain time lag. Namely, there is currently heavy purchasing activity, as producers are trying to offload a future rise in production costs. Thus, activity will be likely stronger in the immediate future, but it will weaken eventually when demand further deteriorates in the year. Even if the Iran war concludes later in May, there has been plenty of damage done already, and it will take time before energy supplies return to normal. It means energy commodity prices will remain elevated for a while, leading to lower output in H2 2026 at the very least. Combined with already weak performance in main euro area markets, the outlook remains strongly on the downside. We should also note that this based on an optimistic scenario, and we doubt that the Strait of Hormuz will open quickly.

• ANO leads by almost 18pps to the ODS, which is effectively tied for second with STAN
• The SPD and the Pirates are the only other parties making it past the 5% threshold
• ANO continues to stand the strongest odds of winning future elections, especially when its opposition is so fragmented

ANO, the senior ruling party, maintained its vast lead in early May, polling at 32.5% (down 0.2pps m/m), according to the latest opinion poll of NMS Market Research, carried out between Apr 30 and May 5. ANO's lead was almost 18pps ahead of the ODS, the opposition leader, which polled at 14.8% (up 0.9pps m/m). The ODS remained practically tied with STAN for second place, as STAN polled at 14.5% (up 0.8pps m/m). No other party is passing 10%, so there is plenty of fragmentation, currently. The SDP, a junior government partner, comes fourth at 8.7% (up 1.3pps m/m), and it appears to have recovered from a recent decline. It managed to take over the Pirates, another opposition party, which slid to only 6.7% (down 1.3pps m/m). We should note that this could be mostly due to lack of activity among respondents, and we have seen such swings previously in NMS polls.

No other party is making it past the 5% electoral threshold, including the Motorists, the other government partner, who are polling at 4.8%. There are also several smaller parties that are polling in the 2-3% range, like Our Czechia (2.8%, down 1.3pps m/m), the KDU-CSL (2.7%, up 0.2pps m/m), TOP 09 (2.5%, down 0.6pps m/m), and the KSCM (2.3%, down 0.5pps m/m). The KDU-CSL and TOP 09 were members of the Spolu coalition, and even though the alliance hasn't been formally disbanded, the ODS, which was the leading party, appears to have no longer interest in it. Yet, this is denying right-leaning parties slightly more than 5% of the vote, though we imagine people at the ODS believe they can win those voters towards their party.

In any case, there doesn't appear to be anything preventing ANO from staying in power. The party has a vast lead, and its opposition is heavily fragmented. Any future election under the current setup will only solidify ANO's lead, even if the Motorists fail to make it to the next parliament. ANO may have to rule with the SPD again, but as seen from the current government, this doesn't appear to be an issue for ANO.

• Offer rates are still higher by 20-39bps y/y for the more popular rate fixation periods
• Average mortgage payment rises by 19.5% y/y according to our estimates
• Yet, we doubt that the CNB's restrictions on investment mortgages will be effective, though they could lower profitability from such purchases

Mortgage offer rates increased slightly in May, with an increase of 2-3bps m/m across various fixed-rate periods, according to the latest Hypoindex survey of SwissLife. The most popular contracts, with a fixed mortgage rate for 3 years, saw an increase of 2bps m/m, up to 4.90%. Furthermore, mortgage offer rates remain higher in year-on-year terms, rising between 20bps y/y and 39bps y/y, apart from mortgages with a fixed rate for 1 year, where rates remained effectively flat, up 2bps y/y to 4.99%. As a reminder, mortgage offer rates rose sharply in April, reflecting uncertainty around the war in Iran, as well as the CNB's restrictions on investment mortgages. As another reminder, the CNB defines an investment mortgages as one for purchasing a third or subsequent residential property, or a buy-to-let one. In any case, mortgage offer rates are now back to their level from late 2024 in most cases, though they are not excessively high.

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The average mortgage payment was estimated at CZK 20,858, though this still carries outdated assumptions. Namely, the calculation uses a standardised mortgage with a 25-year repayment period (which is fine), and a mortgage value of CZK 3.5mn, which is considerably lower than the CZK 4.8mn average value seen recently, according to the CBA's Hypomonitor survey. Thus, if we use actual averages, the average monthly payment would rise by 19.5% y/y in May, primarily because of higher mortgage values, but also due to a higher lending rate.

The same goes for mortgage availability, as using actual mortgage values, the average payment represents about 53% of the gross average wage, and 62% of the median one. This is quite high, and it supports recent surveys we have observed that about 4 out of 10 new properties have been purchased with an investment purpose. Given the discrepancy, however, we doubt that the caps on LTV and DTI ratios will be effective, as investors taking on these mortgages clearly have ample resources to go within the new limits. Still, profitability from such purchases will probably decrease, which could be enough of an incentive to switch investment elsewhere. Housing affordability is a growing issue in domestic politics, and ignoring it would be the demise of any party or coalition in power.

How to raise debt. Babis government is relying on a trick used during "nation building" era (Hospodarske Noviny)

Babis turns around, wants to raise defence spending as soon as this year (Pravo)

Iran promised and agreed not to have nuclear weapons, according to Trump (Lidove Noviny)

Why is Britain failing (Hospodarske Noviny)

Victory Day in Moscow without tanks and missiles: Putin is afraid (Mlada Fronta Dnes)

Russians send their "starlink" to space. Debris are falling in Norwegian Arctic (Lidove Noviny)

CEZ under state control? Our right-wing government also raised government stake, former PM Necas says (E15)

IKEA sharply weakens in Czech Republic. A crisis is already brewing, furniture manufacturers warn (E15)

TV licence fees divide Europe (Pravo)

Psychiatrist Cimicky is still treating women (Mlada Fronta Dnes)

• The cap on petrol prices will rise by 0.1% d/d, and the diesel one will be lower by 0.2% d/d
• Thus far, maximum petrol prices have increased by 3.2% since Apr 8, while maximum diesel prices are lower by 10.1%
• We may observe some cuts in fuel price caps after encouraging news about a US-Iran agreement

The finance ministry kept maximum fuel prices applying on Thursday (May 7) almost unchanged, according to a press release. The cap on petrol prices will rise by 0.1% d/d, while the cap on diesel prices will be lower by 0.2% d/d. It makes maximum petrol prices higher by 3.2% w/w, while diesel prices - by 2.5% w/w. Since the beginning of the current regulation on Apr 8, maximum petrol prices have increased by 3.2%, while maximum diesel prices have decreased by 10.1%. The latter doesn't make a big difference, however, as diesel prices rose by 12% m/m in April, according to EmergingMarketWatch estimates based on weekly data from the statistical office. Thus, any mitigation that this regulation may have provided remains negligibly low.

We may observe some reduction in maximum fuel prices for the May 8-11 period, as global oil prices have eased after rumours that the United States and Iran are closer than ever to a preliminary agreement. As a reminder, Friday (May 8) is a public holiday in the Czech Republic, so the price cap the finance ministry sets on Thursday will apply to the next 4 days.

• Cumulative car sales rose by 2.4% y/y in January-April
• Skoda dominated growth in both monthly and cumulative terms, reaching a market share of 38%
• Battery electric car sales were the strongest in April, rising by 37% y/y
• In cumulative terms, plug-in hybrids held the lead, with sales rising by 28.1% y/y
• The EV sector now has a market share of 10.9%, though it will take about 15 years at this rate to match traditional cars
• Total vehicle sales rose by 8.6% y/y in April, out of which new vehicle sales were higher by 6.9% y/y

New passenger car sales rose by 5.5% y/y (wda) in April, adding up to 22,397 units, according to figures from the statistical office. It brought cumulative sales to 82,877 units, or higher by 2.4% y/y. Skoda was again the main market mover, as it accounted for almost the entire increase, and its sales rose by 14.4% y/y in April and by 11.1% y/y in January-April. In cumulative terms, sales of makes apart from Skoda decreased, and Skoda's market share expanded to 38% in January-April.

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By fuel type, battery electric car sales led growth, though the contribution of diesel car sales was relatively close. Battery electric car sales rose by 37% y/y in April, while diesel car sales were up 10.1% y/y. Plug-in hybrids performed well, too, with sales growing by 28.4% y/y, while petrol car sales increased by only 1% y/y. In cumulative terms, plug-in hybrids continued to lead sales growth, posting an increase of 28.1% y/y, followed by battery electric car sales with a rise of 18% y/y. Diesel car sales were boosted by their April performance, seeing a 3.6% y/y increase in January-April. Yet, if the crisis in the Strait of Hormuz continues, diesel car sales will likely suffer, considering that fuel prices have increased considerably.

The EV sector now has a total market share of 10.9% (up 1.8pps y/y), with battery electric cars accounting for 6.2% of sales (up 0.8pps y/y). Cars with internal combustion engines still dominate, though, as petrol car sales were two thirds of the total (66.1%, down 0.5pps y/y), while diesel car sales had a market share of 21.2% (up 0.3pps y/y). EV infrastructure continues to be a restraint on sales, as well as a relatively high price tags. On the other hand, the potential entry of cheaper Chinese makes in Europe could turn things around. At this rate, however, it will take about 15 years before the EV segment matches traditional cars, which is well beyond 2035, when the EU ban on the sale of new cars with internal combustion is supposed to kick off.

Used passenger car sales rose by a solid 13.1% y/y in April, their second-strongest increase in 2026. It brought cumulative sales to a 10.9% y/y increase in January-April, which has been much stronger than new passenger cars. One of the reasons is price, as an increasing number of buyers are looking towards cheaper alternatives, leading to a steady increase in the average passenger car age.

Total vehicle sales, including buses, motorcycles, trucks, tractors, and trailers, rose by 8.6% y/y in April, out of which new vehicle sales rose by 6.9% y/y. In January-April, total vehicle sales were higher by 5.5% y/y, while new vehicle sales increased by 5.4% y/y.

Overall, April was a good month in terms of car sales, though it was mostly due to Skoda. Still, this is good news for the largest Czech automotive producer, as it guarantees it will not be heavily impacted by Volkswagen's wave of cost-cutting currently in place. It is also an indication that households and firms are still ready to make larger purchases, so private consumption growth should remain solid.

• Yield falls visibly, curve remains completely inverted in short-term segment

The State Debt Management Agency (AKK) placed HUF 30.0bn of twelve-month T-bills on today's primary auction, AKK data showed. The issued volume matched the announced auction size on the back of average demand. Total bids amounted to HUF 58.3bn and provided a comfortable coverage ratio of 1.9x against the planned issuance. Demand was almost twice lower compared to the previous auction a couple of weeks ago. The average yield dropped further, down by 8bps from the previous auction to 5.82%. The curve thus remained completely inverted in the short-term segment after this week's T-bill tenders, we note. The twelve-month yield was still 4bps higher than the secondary market benchmark rate.

• Forint, forex net issuance boosts government debt security stock
• Debt security stocks depressed by negative revaluation effects due to geopolitical volatility, we think

The central government issued net HUF 969.8bn of debt securities in March, the National Bank of Hungary (NBH) reported. Net issuance was relatively large and we think it partly reflected the private placement of USD 1.2bn of forex bonds. The placement reportedly took place in February, but the value date obviously fell in March, we note. The stock of forex bonds consequently increased by HUF 294.0bn in terms of transactions during the month. The share of securities held by non-residents still inched down m/m to 31.7% at end-March, as forint issuance dominated during the month. We expect this share to slip further in April due to the pending maturity of a Eurobond with an outstanding amount of EUR 989.1bn. The share of forint bonds held by non-residents also slipped m/m to 12.5% at end-March, as non-residents divested HUF 189.3bn of forint bonds.

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Data Download

Domestic banks and households were the main buyers of government forint bonds in March. The appetite of retail investors for government securities returned, in our opinion supported by the rise in disposable income after the large bonus payments in Jan-Feb. Total net issuance of forint bonds amounted to HUF 546.0bn and was slightly milder than the volumes in the previous three months. The outstanding stock of government debt securities still rose by a modest 0.7% m/m to HUF 57,077.2bn at end-March, as the high net issuance was dampened by negative revaluation effects. Domestic yields rose with the escalation of the Mid-East conflict, creating a negative revaluation effect. The conflict also boosted the forex debt level through a forint depreciation, but this impact was smaller in magnitude.

The total stock of securities issued by residents fell by 1.0% m/m to HUF 124,863.7bn at end-March. The decline was caused by large negative revaluations, mostly affecting the domestic stock exchange and mutual funds, which we also ascribe to the fallout from the war on Iran. Net issuance was still positive at HUF 774.7bn and the central government accounted for the bulk of it.

• One-off bonus payments to national security employees, retirees likely boost retail sales
• Iranian war seems to trigger pre-emptive fuel purchases, contributing further to headline print
• We expect retail sales to remain elevated but soften with fading impact from bonuses, fuel price scare

Retail sales growth accelerated to 8.2% y/y in March, compared to 3.8% y/y in the previous month, the statistical office (KSH) reported. The March print was a clear outlier to the upside compared to the mostly stable growth of the sector during the preceding several months, we assess. We think that it could be related to the large, one-off government cash injections in the economy like the six-month bonus payment to army and law enforcement personnel as well as the fourteenth bonus payment to pensioners. These payments took place in January and February but possibly showed up as higher household consumption with a slight lag. In addition, we think the war in Iran likely also had some upward impact on retail sales of fuels in particular. Retail sales of fuels rose sharply by 20.6% y/y in March, in our opinion as the war triggered pre-emptive buying for the sake of avoiding higher prices in the future. The fuel price cap that was introduced in the middle of the month might have maintained the stimuli for fuel purchases, we believe.

Data Download

Data Download

Seasonally-adjusted retail sales increased by 1.9% m/m in March. The increase was relatively sharper compared to the average performance from the past few months and extended the consistent upward trend that started in late 2023. Looking forward, we expect that improved consumer sentiment after the April elections and sustained impact from the pre-election income measures of the outgoing government should continue supporting an elevated growth of household consumption. The additional boost from the strong fuel demand and the one-off bonus payments, however, might gradually fade in the next months, we suspect.

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Both food and non-food retail sales strengthened in March. Food sales rose by 2.6% y/y, which was relatively high but not outstanding performance compared to the recent track record. Non-food sales, however, were up by 8.4% y/y, marking the strongest increase since the early 2022. Consumers possibly used the one-off income to invest in big-ticket items, rather than current consumption, we believe. Sales growth of electronics and consumer durables picked up in a most pronounced manner during the month, along with sales of manufactured goods in non-specialised stores. Vehicle sales, recorded outside the headline retail sales print, also showed a visible upturn, rising by 21.6% y/y in non-adjusted terms in March.

Government intervention during crises significantly mitigates negative effects (Magyar Nemzet)

According to election commission NVI, distribution of four constituencies should be modified (Magyar Nemzet)

Unprecedented wave of borrowing has begun (Magyar Nemzet)

Hungary returns all money from gold convoy to Ukraine - Ukraine is grateful (Vilaggazdasag)

New bidder appears in MOL-NIS deal - are they really trying to knock out MOL? (Vilaggazdasag)

Ukrainian money shipment is returned in way that Viktor Orban government could not have done under its own law (Heti Vilaggazdasag)

National Election Commission President proposes to amend electoral district map (Heti Vilaggazdasag)

Constitutional Court annulls decree on solidarity contribution lawsuits (Heti Vilaggazdasag)

• Fidesz maintains weak support, Tisza draws from anti-Fidesz sentiment
• Optimism among voters rises sharply after elections, poll finds

Support for the election winner Tisza has increased further after the elections, according to the latest Median poll commissioned by the Heti Vilaggazdasagg portal and carried out between Apr 27-May 2. Tisza would win 61% of the vote if elections were held now, up by 5pps since the previous poll shortly after the elections in mid-April. Tisza attracted 68% of decided voters and 70% of decided voters certain to vote in the latest poll, also scoring increases of 3-4pps from the previous survey. Fidesz had only 21% of support among all voters, without change. The results seem to imply that Tisza continued to draw support from anti-Fidesz and undecided voters, most likely because of the winner attraction effect, in our view.

A strong majority of 72% of respondents considered Tisza leader Peter Magyar to be suitable for PM, while only 39% of voters considered Fidesz leader and outgoing PM Viktor Orban to be more suitable, the Median poll found. The difference was slightly in favour of Orban only a couple of months before the elections, we note. Some 65% of voters believed that Orban should be tried in court for his actions as PM, a view that was held even by 12% of Fidesz voters, the pollster said.

The survey confirmed that the elections brought a considerable turnaround in consumer sentiment, we believe. The share of voters thinking that the country was going in the right direction was 63% in the current poll, visibly improving from 54% immediately after the elections and compared to the stagnation around the 33% level in the previous polls since the beginning of the year. The share of voters thinking that developments went in the wrong direction has comprehensively shrank to 23% in the current poll from 60-63% before the elections.

• Yield falls by 2bps from previous tender, remains lower than three-month yield

The State Debt Management Agency (AKK) sold HUF 40.0bn of six-month T-bills on today's primary auction, AKK data showed. The issued amount exceeded the HUF 30.0bn plan for the auction despite average demand, in our opinion showing the AKK trying to raise liquidity and compensate for earlier T-bill issuance shortfalls. Total bids amounted to HUF 52.0bn and declined visibly from the previous tender two weeks ago. Demand provided a lacklustre bid-to-cover ratio of 1.7x against the original demand and relatively low 1.3x ratio against the actual issuance. The average yield slipped by 2bps from the previous auction to 5.92%, staying below the three-month yield from yesterday's primary placement. The six-month yield was still 3bps higher than the secondary market benchmark rate.

Cryptocurrency regulation bill is to return to president for third time [he has vetoed two previous attempts, but Zondacrypto case might change political calculations] (Rzeczpospolita)

Would KO-Left coalition help them? [poll shows KO-Left would get 35.7%, PiS some 23.4%, Konfed 12.2%, and Korona 7.9%] (Gazeta Wyborcza)

There is no other path for Poland but to have American troops (Rzeczpospolita)

Defense industry is to earn money on SAFE loans (Rzeczpospolita)

European Court of Human Rights orders Tribunal judges to sit (Gazeta Wyborcza)

Getting ahead of Le Pen [PL could remain largest beneficiary of EU budget until 2034 unless new financial framework can't be agreed before FR presidency next spring] (Rzeczpospolita)

Recruiters are drowning in a flood of CVs (Rzeczpospolita)

We can already see that there are fewer and fewer of us (Rzeczpospolita)

• Nominal total of mortgage loan inquiries rises 18.7% y/y to 42,280 in April
• That total falls 33.2% m/m from the huge 63,310 seen in March

The number of mortgage inquiries rose 18.78% y/y to 42,280 in April from 35,610 a year earlier, though the total did fall a sharp 33.2% m/m from the massive 63,310 seen in March, according to information released Wed. by the Credit Information Bureau (BIK). The average value of the loan inquired about rose 9.3% y/y to PLN 500,410, though that was down 1.2% m/m from the record of PLN 506,420 in March.

BIK noted that April did not see as many people applying for mortgages as in March, confirming that the demand impulse related to geopolitical tensions in the Middle East proved short-lived. As the situation has de-escalated, it noted that sentiment has cooled significantly. Still, it said this did not mean demand has weakened and in fact it noted that demand remained high. BIK added that the growth rate will decline m/m in the coming months due to a base effect.

• Next MPC meeting: Jun 1-2, 2026
• Current policy rate: 3.75%
• EmergingMarketWatch forecast: 3.75%

Rationale: The Monetary Policy Council has now held fire in April and May and this theme is likely to continue, leading to rate holds in the coming months as well. The MPC has been fairly measured in its response to the fallout from the war in the Middle East, though the resulting rise in inflation has put to rest the chance for more interest rate cuts after the March trim of 25bps. The council has made it clear it doesn't want to react to an exogenous shock, but it will be sensitive to second-round effects and any sign of a rise in underlying inflation pressure. As the latter isn't right now expected to be severe, this probably means the MPC is set to hold rates for an extended period.

The MPC's post-sitting statement in May did note that CPI inflation had accelerated in April to 3.2% y/y on the back of the war in Iran, but it rather outlined the rise in uncertainty than point to the threats to inflation from the conflict. This suggests that though it might be slightly more hawkish, it is not unduly so.

With a slightly more hawkish tone, the council is likely to continue in its wait-and-see stance until at least the July sitting, which is to see the updated Inflation Report, and the new inflation and GDP projections. But though July might help the MPC guide where it might go, the data to then is unlikely to be sufficient to push the council one way or another. In all probability, the MPC will see 3.75% as a good rate level for the rest of the year.

To be sure, if the Iran war flared up again and the Strait of Hormuz is not unlocked, this would increase the risk of higher inflation pressure and thus of a more hawkish MPC. In that case, the possibility of rate hikes would rise. We think the MPC would likely have to see a few to several months of above 3.5% y/y inflation and note some sign that core or other underlying inflation measures were problematic as well. Still, the labour market is not as strong as it was in the most recent shock, and this will likely undermine wage demands, increasing the chance any fuel shock won't lead to the kinds of problems that would make a rate hike likelier.

Overall, we think the MPC is on hold for some time. Much will probably depend on how fast global energy markets can recover from this current shock. It does seem likeliest that fuel prices will fall back, but remain higher than they would have been had the US and Israel not attacked Iran on Feb 28. This will mean flat rates through 2026, in all likelihood.

MPC's post-sitting statements

Latest council minutes

Latest NBP inflation report (March 2026)

Most recent MPC voting results

Archived video of all MPC press conferences

• MPC says it held rates at its May sitting due to higher CPI inflation and likely rise in core as well
• MPC says it held rates also due to high uncertainty

Poland's Monetary Policy Council held interest rates at its May sitting on Wed., noting in its post-sitting statement that CPI inflation had accelerated in April due to the fallout from the war in the Middle East and that core inflation had likely accelerated as well. The MPC noted that headline CPI inflation jumped to 3.2% y/y in April from 3.0% in March (and 2.1% in February) mainly from higher annual growth in fuel prices resulting. But the MPC also noted that the there was uncertainty regarding future developments in the geopolitical situation and their impact on the economy, and as a result the MPC decided to keep its rates unchanged.

In its paragraph on the outlook, the MPC did not change it from the version that followed its April sitting, which also led to a rate hold. The MPC thus said that future decisions would depend on the new data on inflation and economic activity. It continued to note that these prospects would be influenced by changes in the macroeconomic situation abroad, including changes in global commodity prices and inflation, amid the current geopolitical context. Fiscal policy and regulation concerning fuel prices as well as changes in growth of activity in the Polish economy and further developments in wage growth remained risk factors for the inflation outlook, it said.

On the economy, it noted that March retail sales, industrial output, and construction production had increased in annual terms, though all the data available since the beginning of 2026 signalled that annual GDP growth likely slowed in Q1 2026. It added that annual wage growth in the enterprise sector in Q1 was also lower than in the previous quarter, and that was accompanied by a further fall in employment in this sector.

Overall, the MPC's post-sitting statement was not overly hawkish, especially as all the council did was note that CPI inflation had accelerated by more than expected. It did not warn of a worse outlook, but rather highlighted the uncertainty. This might mean NBP and MPC chair Adam Glapinski will be measured at his monthly press conference to be held on Thurs. He has been expected to be hawkish. One thing Glapinski does like to emphasise is that though the Middle East conflict has increased the chance of higher inflation, it is also likely to weigh on the economy, somewhat neutralizing the former. In the end, we think the data, the post-sitting statement, and Glapinski's likely stance will confirm that the MPC is firmly in 'wait-and-see' mode and will likely keep rates flat for a long time to come.

Question:

Hi, are the EUR from EU funds converted by the NBP into PLN or directly in the market? Is there a way to track or quantify these flows?

The question was asked in relation to the following story: Poland is net EUR 819mn beneficiary with EU in February

Answer:

The EUR funds from the EU are mostly converted at the NBP, but the Finance Ministry has been converting some on the market depending on need. The problem is that it only reports how much it converted on the market once a year, with the release coming in May or June.

Please click here for my latest story, which includes a table with the latest results. Now, that has data only up to 2024 since the release for 2025 should be out next month or early in June.

The FinMin does also report how much foreign currency it holds once a month. I haven't been able to provide a good correlation for EU flows and the EUR in its accounts, but it might be at least feasible. My latest story on this is here.

• Post-sitting statement to be published at 16:00 CET
• Glapinski to hold his presser on Thurs. at 15:00 CET to explain
• We believe MPC is on hold till July and likely for much longer

Poland's Monetary Policy Council decided Wed. to hold its key rate at 3.75% in a decision that was precisely in line with the consensus expectation, according to a statement. This was the second straight hold and follows the start of the war in Iran, which has pushed up fuel prices and led to a spike in inflation. The MPC will publish its post-sitting statement at 16:00 CET. NBP and MPC chair Adam Glapinski will give his monthly press conference on Thurs. at 15:00 CET to further explain the move.

Data Download

Overall, the big question going to the post-sitting statement is likely how hawkish it will be in light of the fact CPI inflation surprised to the upside in April. CPI inflation accelerated to 3.2% y/y from 3.0% in March, coming in well above the 2.9% consensus and being up a full 1.1pps from the pre-war print of 2.1% in February. The MPC isn't likely to react to the direct inflation shock, but will likely rule out further rate cuts after the March one and may lay out conditions for potential hikes. Still, the MPC is unlikely to cut unless CPI inflation accelerates further and there are signs of second-round effects. In all probability, the council is definitely on hold until July, when the inflation projection is updated, and probably for much longer considering, though all is dependent on how the Iran war goes.

• MPC did not say why it brought forward the meeting from prior Jun 9-10 plan

The NBP said Wed. that the Monetary Policy Council's June policy sitting would not fall on Jun 1-2 and not on Jun 9-10, as previously released. The new meeting is to fall on Mon.-Tues. rather than on Tues.-Wed., like before. Most MPC sittings are held on Tues.-Wed. and so some scheduling conflict must have arisen.

Overall, the May policy meeting kicked off on Tues. and will result in an interest rate decision on Wed., though that decision is almost certain to be a hold. NBP and MPC chair Adam Glapinski will give his monthly press conference on Thurs. and is likely to sound more hawkish than before on continued inflation pressure generated by the war in Iran. The June meeting will give the MPC slightly less time to get new data, but it won't likely have any policy impact since the council is very likely to hold anyway. Further rate cuts are likely to be ruled out while rate hikes cannot be, though if there are cuts, they are only likely to follow several higher CPI inflation prints. The MPC is almost sure to keep rates flat until at least July, when the updated Inflation Report is released. If there is to be a hike, it would follow elevated CPI inflation, but also signs of underlying inflation acceleration as well as second round effects, and neither is likely to be clear until September or later. For now, we continue to expect the MPC to resist hikes, but it will not hesitate to move if the need becomes clear.

• Energy Ministry lowers both retail price maximums

Poland's Energy Ministry announced Wed. that the maximum regular and premium unleaded petrol price caps as well as the diesel price maximum in effect for Thurs. will decline from the Wed. level, according to a statement in the Official Gazette. The basic unleaded 95-octane price cap will fall 0.5% to PLN 6.46 a litre (with VAT) from PLN 6.49 the day before. The price remains well above the PLN 5.73 a litre seen before the US and Israel attacked Iran. The premium unleaded max will fall 0.6% to PLN 6.95 a litre on May 7 from PLN 6.99 on May 6.

The diesel price maximum will fall 0.7% to PLN 7.26 per litre from PLN 7.31. The diesel price remains well above the PLN 5.98 a litre seen before the US and Israel attacked.

• Registration growth slows from 19.6% y/y in March
• Registrations fall 18.6% m/m to 57,874 units in April from 71,110 units in March
• Registrations rise 7.9% y/y to 227,639 units in Jan-Apr
• Samar ups 2026 forecast growth to 6.4%

Polish passenger car and light commercial vehicle (LCV) registrations rose 10.2% y/y to 57,874 units in April from 52,504 units the year before, according to data published Wed. by the car-market monitoring company Samar. The rise slowed from the 19.6% y/y posted in March. The April total fell 18.6% m/m from 71,110 units the prior month with April having one less working day m/m. In Jan-Apr, registrations rose 7.9% y/y to 227,639 units, speeding up from 7.2% in Jan-Mar.

Samar commented that the upward trend in the new car sales market continued in y/y terms in April, which was the best for the month in the 21st century and the second best so far this year. The strong performance rested on the completion of the traditional early-year sales of cars from the past model year and attractive pricing. Chinese passenger car sales also continued to do well, the share rising to 12.7% in April from 11.7% the month before. The share of new electric passenger cars decreased slightly to 5.1% from 5.3%.

On the back of the data, Samar upped its forecast for passenger cars this year to 635,000 (from 625,000) and light commercial vehicles (LCV) to 75,000 (from 74,000), giving a total of 710,000 units (up from PLN 699,000). Registrations are now to rise 6.4% in 2026, the total up from 4.7% before.

In the breakdown, passenger car registrations rose 10.4% y/y to 51,827 units, which marked an 18.9% m/m decline. In Jan-Apr, the total rose 7.6% y/y to 203,477 units. LCV registrations rose 9.2% y/y to 6,047 units in April in a total that marked a 16.1% m/m decrease. Samar did not give the ytd total.

Overall, vehicle registrations continued to hold up well in April despite the rise of inflation pressure and uncertainty tied to fallout from the war in Iran. Interest rates were cut in March, though the rate situation is less rosy in the wake of the war. But the new vehicle registration market reflects mostly corporate demand, and the year is still expected to see strong economic growth and lots of investment, which helps underpin company sentiment and vehicle registrations. The downward pricing impact of Chinese cars also helps in affordability terms as real incomes continue to grow and the unemployment rate remains relatively low. Still, uncertainty remains high and any further rise in inflation pressure could easily lead companies and some individuals to reconsider their purchase plans, though Samar's forecast for annual registration growth is in line with nominal GDP forecasts for now.

• New draft applies flat 12.5% tax to all exporters

The updated version of the bill under discussion at the Parliament set the corporate tax rate for all exporters at 12.5%, Vice President Cevdet Yilmaz said. The statement marked a revision to the initial draft reviewed by the parliamentary commission, which proposed lowering the rate to 9% for manufacturing exporters and 14% for other exporters.

Speaking at the participation finance summit, Yilmaz said the latest version of the proposal moved toward a single reduced rate for all exporting companies. The general corporate tax rate stood at 25%, while the proposed change aimed to support export-oriented production and investment, he noted. The adjustment was expected to strengthen Turkey's export capacity, improve the competitiveness of companies operating in foreign markets, and encourage businesses to expand production with a stronger focus on international demand, he expected.

• Inflation and delayed CBT easing drag AKP support down
• CHP closes gap to AKP to 0.7pps
• MHP gains support despite ideological cracks, while DEM holds

The ruling AKP kept a narrow lead with 32.1% of support, slightly above its previous three-month average of about 31.7%, but down from 32.5% in March, the latest ORC poll indicated. The broader mood seemed to be driven more by economic conditions than by daily political news, we assess. Inflation pressure became more visible in April, partly because of higher oil prices and the knock-on effects across the economy, we note. The CBT's delayed easing cycle also weighed on market sentiment, adding to a more cautious voter environment, we think.

CHP's popularity rose to 31.4% in April, above its Q1 average of roughly 30.7%. That cut the gap with the AKP to just 0.7pps. It also showed that the main opposition was holding firm, even without a major new political agenda. The Ekrem Imamoglu trial dominated local conversations, with most voters viewing the prosecution as a political weapon. CHP also fought a lingering absolute nullity lawsuit, yet the party still managed to grow its support, in our opinion.

The MHP posted one of the clearest gains of the month, rising to 8.5% from a previous three-month average of about 7.7%. At first glance, it may look like a straightforward gain, but set against the backdrop of dissolved provincial branches, Yonter's resignation and the ideological strain caused by Bahceli's softer line toward DEM, the uptick arguably reflected a short-term rallying of the core nationalist base around a leadership asserting central control rather than any genuine broadening of appeal. We would treat the figure with caution, given the well-documented structural biases in Turkish polling that tend to flatter the ruling bloc, and we suspect the party's real standing sits closer to the threshold than the headline suggests.

DEM also stood at 8.5% in April, slightly above its Q1 average of around 8.2%, though below its March peak of 8.9%. The party kept a solid position despite the lack of visible progress in the peace process during the month. The more important statements came in the last day of April, so the poll ratios probably reflected the existing balance rather than any reaction to the latest developments. The next polls will matter more for judging whether the frozen process affected DEM's support, we assess.

The IYI Party polled at 5.4% in April. Yet, its support was still well below its Dec 2025 level, suggesting, in our view, that the party has not yet found a way back to stronger ground. The YRP slipped to 2.5% in April, slightly below its three-month average of around 2.7%. The ZP held steady at 3.8%. Its support remained stable despite the wider economic pressure and the relatively quiet political agenda.

• EMW mapping points pre-meeting expectations to 22% implied CBT year-end target, 18-26% range
• Elevated expectations tighten CBT's credibility constraints ahead of Q2 inflation report
• CBT usually fixes near-term targets late in year, but Iran war forces policymakers to drop that waiting game, in our view
• We maintain our year-end inflation forecast at 28.3%, therefore anticipate further revisions in CBT's corridor later this year, beyond next week's mid-year repair

We frame the upcoming Inflation Report through a state-contingent lens that links the CBT's published path to where markets price year-end inflation going into the meeting. The intuition is straightforward: when year-end expectations remain elevated on the eve of an Inflation Report, the CBT typically faces a tighter credibility constraint and tends to "repair" the near-term corridor more decisively, even if it tries to preserve the longer-horizon convergence story. To quantify this relationship in a disciplined way, we restrict the sample to the post-2021 regime and focus specifically on Q2 Inflation Reports, then concentrate on the current-year horizon where revisions are historically most responsive. For each year in that window, we pair the CBT's Q2 midpoint for the current year with the market's year-end inflation expectation observed immediately ahead of the same meeting, and estimate a simple mapping between the two.

Figure 1. 2026 Year-End Inflation Corridor Comparison CBT vs EMW Benchmarks

Applying that mapping to the latest pre-meeting expectation, 27.82% ahead of the Q2/2026 report, yields an implied Q2/2026 midpoint of around 22%, with an indicative interval of roughly 18-26%. This stands materially above the current 16.0% midpoint published at the Q1/2026 report. The point is not that the CBT must print 22% to "validate" markets; the sample is small and the estimate should be treated as a benchmark rather than a precise forecast. The point is that, with expectations still high, leaving the 2026 midpoint unchanged would look increasingly inconsistent with the Bank's own revealed Q2 behaviour and would risk widening the credibility gap at a moment when policymakers also want to keep the door open for gradual easing. In that sense, the market-expectations lens strengthens the upside-risk narrative into next week's report: the most plausible way for the CBT to defend its corridor without formally revising the interim target is to lift the 2026 midpoint meaningfully, while limiting spillover to longer horizons.

Having said that, we still view these implied year-end levels as implausible under the current pricing dynamics and therefore keep our year-end inflation forecast at 28.3% y/y, with a 25-31% y/y range. This stance also sits comfortably with the CBT's revealed playbook, we think. Historically, the CBT has tended to "repair" the near-term path late in the year, with meaningful last-minute changes that pull the corridor closer to realised inflation as the year-end print approaches. Put differently, the CBT often postpones the most uncomfortable acknowledgement until the data leave little room to maintain the earlier glide path.

This time, however, the environment looks less forgiving, we note. The Iran war has shifted the risk distribution, and the gap between market pricing and the CBT's year-end target has widened materially, tightening the Bank's credibility constraint well before year-end, we underline. When year-end market expectations sit far above the official target, the CBT cannot rely on a late-year adjustment alone without risking an earlier drift in expectations and a weaker real-rate configuration, which would ultimately make continued easing harder to justify, we assess. In other words, the combination of a shock-driven energy backdrop and a clearly elevated expectations anchor increases the odds that the CBT is pushed into front-loading part of the repair, at least on the current-year corridor, rather than waiting until the Q4 to reconcile its numbers with the realised track, in our assessment.

Overall, as we have flagged in previous reports, we think the CBT is increasingly operating away from its existing year-end target in practice, even if it avoids declaring a formal break. We expect next week's Inflation Report to deliver a meaningful upward repair to the 2026 corridor, potentially earlier than the Bank's usual late-year pattern-given the Iran-war shock and the widened gap between market pricing and the official path. Even so, we do not treat a single mid-year adjustment as the end point. In our view, the inflation backdrop remains too strong for the CBT to lock in a credible year-end path with one revision, and we therefore see a material risk of another upward recalibration later in the year, consistent with its playbook of gradually converging the published corridor toward the realised track.

Automotive exports increase by 23% y/y in April (Sozcu)

Turkey's 77-year-old giant power plant is being privatised (Sozcu)

Another chairman is removed from office in MHP (Sozcu)

President Erdogan: Culture of foundations is valuable asset of ours (Hurriyet)

CHP council member is detained for insulting President (Hurriyet)

CHP's convention case is postponed to July 1 (Hurriyet)

Transport minister Abdulkadir Uraloglu: There is no jet fuel problem in Turkey (Sabah)

Vice President Cevdet Yilmaz: Country without defence industry is not independent (Sabah)

Before Eid al-Adha holiday, focus is on ticket prices (Sabah)

Trade minister Omer Bolat: Defence and aerospace exports reach USD 10bn in 2025 (Sabah)

Agreement on visa exemption is signed between Turkey and Saudi Arabia (Sabah)

• Moody's Reusche says premature to raise given uncertainty about policy continuity

Moody's is unlikely to upgrade Argentina's sovereign credit rating from Caa1 in the short term, Moody's vice president and sovereign risk senior analyst Jaime Reusche said late Wed. at an event. Reusche explained that it would be premature to raise the sovereign's rating when there is still uncertainty about policy continuity, especially when the president's approval seems to be declining and there are questions about the outcome of the 2027 general election. Reusche added that beyond the current government's commitment, the country's rating is also influenced by its track record, so there needs to be a little more time with a prudent policy approach.

Reusche said that the sovereign's external finances are the other key factor Moody's evaluates very closely, since it is also a long-time weakness for Argentina. Reusche said there have been improvements in that the probability of default is substantially lower than it seemed just a year and a half ago. He added that Moody's focuses on the government's financing strategy and whether it matches the external obligations through 2028, and that the rating agency expects an export boom from 2028 that will be highly beneficial for the country.

Overall, Fitch's rating upgrade into B- pushed bond prices higher, but it seems Moody's won't be taking a similar rating action for now. Locally, there has been a lot of discussion among traders as to whether Fitch's upgrade is enough to significantly expand the global investor pool for sovereign bonds, or whether the impact remains limited until Moody's and S&P also raise Argentina out of the C category.

Javier Milei defended Adorni and said the official will submit his asset declaration early (La Nación)

Government crisis: Bullrich asked Adorni to submit his asset declaration "immediately" (La Nación)

Tensions over Adorni: Karina Milei and Patricia Bullrich maintain a volatile relationship between LLA's two most influential women (La Nación)

At Los Angeles conference, Milei highlights achievements of his administration and calls for investment in Argentina (La Nación)

After clash with Milei, Paolo Rocca steps down as CEO of Techint pipe manufacturing company (Infobae)

Mercuria Energy and Integra Capital near deal to acquire Raízen Argentina, with possible role for Edenor in transaction (EconoJournal)

Buenos Aires City issues USD 500mn in debt at record-low 7.37% rate (Clarin)

Moody's sees improvements but keeps Argentina's rating unchanged amid concerns over political transition and debt maturities (Clarin)

Opposition governor who rejected RIGI now seeks to join amid industrial job losses in his province (Clarin)

• City sees more than USD 2bn in bids, issuance yield marks new low for sub-sovereigns under Milei

The City of Buenos Aires will issue USD 500mn of a new 2036 USD bond under UK law at 7.325%, after seeing around USD 2bn worth of bids, the city's finance minister said on X. This becomes the seventh sub-sovereign launch during Javier Milei's presidential term, and the one with lowest issuance yield.

The City of Buenos Aires had good timing with its bond placement, with bidding closing the day after Fitch raised Argentina's sovereign credit rating to B-.

• Oil and lithium keep gaining momentum, gas, gold, and silver output swings to positive

Mining activity surged 2.4% m/m and 10.4% y/y in March, returning to a double-digit y/y growth rate for the first time since April 2024, according to data published Wed. by Indec. Oil and lithium production continued to show the fastest growth and gained momentum in March, while gas, gold, and silver recorded a turnaround after a string of negative months.

Oil production expanded 16.0% y/y in March and 16.2% in Q1, with unconventional oil output from Vaca Muerta hitting another quarterly high. The industry is investing to increase transportation capacity, especially toward export ports, which should allow continued oil output growth for the next few years.

Gas production increased 5.9% y/y in March and declined 0.8% y/y in Q1. Gas production is expected to take a significant jump by mid-2027, with the arrival of the first FLNG vessel for Vaca Muerta.

Lithium carbonate production spiked 70.2% y/y in March and 44.3% y/y in Q1, as more projects become operational and others ramp up toward full operations. If we annualize the output of the first three months we get 131kt for 2026, but this is probably a floor given the evolution of output in recent months. In its most recent estimate of mining exports, the Mining Ministry forecast USD 1.5bn for lithium in 2025, which would triple by 2030.

• Caputo says Chevron to seek RIGI entry with USD 10bn project after meeting top company officials

Economy Minister Luis Caputo said Chevron announced plans to sign up for the Large Investments Regime (RIGI) with a USD 10bn investment plan, according to a post on X following his meeting with Chevron's Chief Corporate Affairs Officer Laura Lane and Chief Financial Officer Eimear Bonner. Although details are still to arrive, Chevron has been a pioneer in Vaca Muerta's development, and this announcement likely concerns an upstream project in the area. Caputo said last week that oil and gas companies would soon announce seven or eight upstream projects with investment requirements of USD 30bn - USD 40bn.

Overall, the oil, gas, and mining industries continue to announce investment plans that are unprecedented for Argentina. The lack of precedent and persistent political risk make us somewhat skeptical. However, at least in the oil and gas sector, the time between investment decisions and commercial operations is relatively short, and the most advanced projects are already able to sign offtake deals.

Lula vs. Trump: Friendly tone in phone call leads Brazilian govt to rule out risks in meeting (O Globo)

Lula and Trump may lay their cards on table regarding critical minerals, big tech companies, and tariffs (JOTA)

[Banco Master's] Vorcaro's defense team submits plea bargain proposal to Federal Police and Attorney General's Office (Poder360)

[FinMin] Durigan says Brazil is on right track and forecasts surplus this year (Agência Brasil)

Central bank reverse swap auction facilitates reduction of long dollar positions (InfoMoney)

[Debt-relief program] Desenrola gets off to a slow start, but banks say program will gain momentum on Thurs. [May 7] (Folha de São Paulo)

Govt is expected to launch [new debt-relief program] 'Desenrola' for those who pay their debts on time (Veja)

[Justice] Dino proposes criminal penalties for anyone who creates new benefits that exceed constitutional salary limits (CNN Brasil)

• BCB sells USD 500mn in reverse FX swaps Wed.
• Action follows directive to avoid abrupt disruptions in the FX market

The BCB held a reverse FX swap auction on Wed. amid strong appreciation of the BRL, with the central bank selling USD 500mn, according to a statement released by the central bank. A total of 10,000 contracts with maturity on Jun 1 were traded, it said.

Overall, this was the first time since November 2016 that the BCB conducted a standalone reverse FX swap auction without accompanying spot-market dollar sales. The intervention comes amid a sharp appreciation of the BRL relative to its emerging-market peers and appears to signal that the BCB views the movement as excessive. This is aligned with the central bank's policy of limiting intervention in the FX market to periods of market disruption.

• New businesses drive activity growth in Apr
• Input inflation rises to highest level in over a year due to energy shock

The S&P PMI Global Services Business Activity for Brazil rose 2.2pts m/m to 52.3pts in April from 50.1pts in March, according to data released Wed. by S&P. The increase kept the index above the neutral mark for the sixth consecutive month, indicating continued expansion. S&P said activity growth was driven mainly by new business, which allowed employment to rise for the third consecutive month. Business optimism for the next 12 months increased in April driven by expectations of a sustained demand recovery, improved economic conditions, and a more stable market environment after the October elections.

Data Download

Input costs continued to rise, this time at the fastest pace in over a year. This was passed on to consumers through higher selling prices. Companies said the Middle East conflict has pushed up fuel, energy, transport, and various material costs, especially in the transport, information, and communications sectors.

Overall, the services PMI has remained above the neutral mark for six consecutive months, indicating a resilient sector despite monetary tightening by the BCB. It has been supported by a robust labor market, real wage gains, and government transfers. The resilience of the sector has been a key concern for the Copom, which has been closely monitoring services inflation and points to persistent pressures due to a positive output gap as an upside inflation risk. Still, 12-month services inflation slowed to 5.92% y/y in March, while core services inflation has been declining for six consecutive months, reaching 5.34%. Recent inflationary pressures from higher fuel prices contribute to the Copom's more hawkish stance and data-dependent approach to policy decisions, although at this stage we believe this is unlikely to alter expectations for another 25-bp cut in June. Yet, there is still the risk of a pause should inflation pressures mount further.

• MPC meeting: Jun 16-17, 2026
• Current policy rate: 14.50%
• EmergingMarketWatch forecast: 25-bp cut (to 14.25%)

The BCB's Monetary Policy Committee (Copom) adopted a more hawkish tone in response to inflationary pressures stemming from the supply shock caused by the Middle East conflict and its impact on further de-anchoring inflation expectations at longer horizons, particularly for 2028, though we still think its previous interest rate policy likely allows for another cut at its next sitting. In recently released minutes to its Apr 28-29 meeting, the Copom said the duration of the shock "may have been sufficient" to materialize the risk of further de-anchoring of expectations, reinforcing its concern over this issue, which remains central to the committee. Despite this more challenging scenario, the Copom cut the Selic rate by 25bps to 14.50% at the April meeting, and we expect another cut of the same magnitude in June, as the committee also reiterated the effectiveness of the prolonged restrictive monetary policy in supporting domestic disinflation. Even so, we do not fully rule out the possibility of a pause in the Selic "calibration" cycle should inflation expectations deteriorate further.

On the external front, the Copom said it was maintaining heightened vigilance due to uncertainties surrounding the duration of the Iran conflict and its potential impact, as well as uncertainty regarding US economic policy. The Copom noted that both core and headline inflation readings have moved above the 3.00% target midpoint due to the Middle East conflict, putting pressure on both consumer and producer prices. PPI inflation, for instance, rose to 2.4% m/m in March, and 12-month cumulative deflation narrowed to 1.5%, driven by higher fuel prices. In addition, the Copom expressed concern about second-round effects from the energy shock, particularly on inflation expectations, and reaffirmed its commitment to addressing these effects.

The Copom thus faces an inflationary environment driven by both demand- and supply-side pressures, requiring the maintenance of a restrictive monetary policy stance. Committee members reiterated that the current cycle is one of "calibration," as the policy rate is expected to remain in contractionary territory even after adjustments. Another point of concern highlighted by the Copom is the likelihood that the conflict's effects on production and global value chains may be more persistent, prolonging its impact. Still, the committee has maintained its inflation risk balance as numerically even, albeit elevated on both sides.

From a domestic perspective, the Copom noted the effectiveness of maintaining a restrictive monetary policy for a prolonged period, with economic activity moderating despite a still-resilient labor market. The committee also emphasized the need for a cooling of demand and for a credible and countercyclical fiscal policy to ensure inflation converges to target at a lower disinflation cost in terms of economic activity.

Overall, the Middle East conflict has, in our view, affected both the likely pace of Selic cuts in 2026 and increased uncertainty regarding the total magnitude of easing by year-end, thus hindering any kind of forward guidance. Although the Copom cut the Selic by 25bps in April, it adopted a more hawkish tone in response to the deterioration in inflation expectations, which have risen to 3.61% for 2028, according to this week's Focus Report from the central bank. In this scenario, the Copom reaffirmed that future policy decisions will depend on incoming data and greater clarity regarding the evolution of the external shock, which remains uncertain and subject to conflicting signals. Given the ongoing domestic slowdown, we still expect the Copom to cut the Selic by 25bps at the June meeting, although a pause cannot be ruled out if inflation expectations deteriorate more sharply at longer horizons.

Sheinbaum says the Foreign Ministry sent a diplomatic note to the US demanding evidence against Governor Rocha (Animal Político)

Rocha reportedly paid USD 10mn and gave control of water in the state to the Chapitos faction of the Sinaloa cartel to obtain the governorship (Político MX)

Trump warns that, if Mexico will not do as it must, the US will do so [on drug traffic] (El Economista)

US declares the fentanyl crisis as a chemical war, raises pressure on Mexico (Expansión)

Trump threatens Mexico with an intervention if it doesn't do its job vs the cartels (El Sol de México)

US General Attorney Todd Blanche says more indictments of Mexican politicians may come (La Razón)

PRI asks the US to declare MORENA a terrorist organization (La Razón)

Sheinbaum says those seeking foreign support are destined to fail

Monreal demands filters in MORENA to prevent the nomination of criminals (La Razón)

Ebrard and business leaders travel to Canada to advance the revision of the USMCA (El Financiero)

• Only 14% believe he is innocent
• 50% of those polled believe more in the US justice system, 33% believe in the Mexican one

A thin majority of 57% backs the extradition of Sinaloa Governor Rubén Rocha following an indictment by the US, accusing him of drug trafficking, according to a poll published by local daily Reforma on Wednesday. 32% oppose the extradition, the poll shows.

The poll was held on May 5 with a small sample of 247 adults.

Only 14% of those polled believe the governor is innocent. We assume this is the lowest among other governors accused by the opposition of links with the cartels, considering the media accusations vs Governor Rocha have been more constant and informed. However, the poll shows 50% believe more on the US justice system than on the Mexican one, with a 17pps advantage over those preferring the Mexican system. This suggests that about half of the population might be willing to accept any indictment made by the US even if it's not confirmed by Mexican authorities, showing the impossible position in which President Claudia Sheinbaum is found, either siding with someone believed to be guilty or with regime leaders and available evidence.

• Auto sales accumulate 4.8% y/y growth in Jan-Apr, showing surprisingly healthy performance

Domestic auto sales rose by 8.6% y/y in April, to 118,859 units, per data published by the stats office INEGI. With this, domestic auto sales rose by 4.8% y/y in Jan-Apr.

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Overall, domestic auto sales began the year with surprisingly healthy performance, in our view, considering the poor performance of private consumption to start the year. Indeed, we note the consumption of durable goods disappointed in Jan-Feb (latest available), with the consumption of domestic durable goods down 20.4% y/y in February and imported durable goods up by only 2.0% y/y, in the weakest hike of the moving semester. Thus, the domestic auto sales performance should justify some optimism towards Q2, in our view, suggesting appetite might not be as weak as domestic consumption data suggest.

• Decline comes fully on weaker machinery and equipment investment
• GFI declines 4.2% y/y in February, from a weak comparison base
• GFI adds 18 consecutive contractions, showing negative impact on growth

Gross Fixed Investment (GFI) fell by 0.80% m/m in February, per seasonally adjusted data published by the stats office INEGI on Wednesday. This contraction came fully on the back of the machinery and equipment component.

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Non-adjusted data show GFI down by 4.2% y/y in February, coming down from an already weak comparison base and adding 18 consecutive contractions. The fall came fully on the back of the machinery and equipment component.

Overall, GFI continues to disappoint, coming down from big nearshoring hopes and crashing vs a weakening business climate due to domestic policies by the MORENA regime and because of bloated uncertainty driven by US trade policies. Indeed, some recovery might come in H2, if the US-Mexico-Canada Agreement (USMCA) revision can conclude positively. However, the negative impact of domestic policies will persist, as conditions to invest weaken much following the judicial reform that damaged the division of power greatly.

• Private consumption grows 0.9% y/y per non-adjusted data and slows again
• Domestic goods consumption declines for the third time in four months, down 1.5% y/y
• Domestic services consumption stagnates
• Print is worrying; it confirms domestic market's weakening in Q1

Private consumption declined by 0.46% m/m in February, per seasonally adjusted data published by the stats office INEGI on Wednesday. This is the second contraction in a row, anticipating much weakening in Q1 following a 1.62% m/m sa fall in January.

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Private consumption grew 0.9% y/y in February, per non-adjusted data. This shows a massive deceleration in Q1, from the 6.8% y/y hike posted in December.

y/y data continues to post positive performance thanks to imported goods, which rose by 11.7% y/y, mostly driven by the consumption of non-durable goods.

However, consumption of domestic goods and services showed much weakness in February. Consumption of domestic goods fell 3.0% y/y in February, with across-the-board weakness and a particularly concerning 20.4% y/y decline in durable goods' consumption. Consumption of domestic services showed weakness too, stagnating y/y, slowing by 2.2pps in the first bimester of the year.

Overall, we take this print to be evidence of a significant deceleration by private demand, in a worrying but unsurprising development considering preliminary data suggested this much. This deceleration is probably, in large part, behind the economy's Q1 disappointing performance, with the stats office's preliminary estimate anticipating a 0.8% q/q contraction.

• Next MPC meeting: May 7
• Current policy rate: 6.75%
• EmergingMarketWatch forecast: 25bps cut

Comments by CB Governor Victoria Rodríguez and Deputy Governor Omar Mejía show the dovish CB majority at Banxico is set to cut its Monetary Policy Rate (MPR) on Thursday, bringing down the policy rate to 6.50%. We expect this to be a 3-2 vote, with Deputy Governor José Gabriel Cuadra completing the dovish majority.

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The decision to cut again is surprising to us and the market, considering the CB was expected to pause its easing cycle during at least one sitting following the March 25bps cut, given lingering inflationary pressure, new risks, and poorly anchored mid-term expectations.

This last cut to the easing cycle will come as CPI inflation rose to 4.59% y/y in March, accelerating by 0.90pps in Q1. Although Deputy Governor Mejía is right to note this mostly comes on the back of probably transitory shocks, affecting non-core inflation, it's impossible to say at this point how long this shock will last and whether it will contaminate other prices, in our view. Moreover, even though most of the new pressure is contained in these transitory shocks, we note core inflation did accelerate in Q1 too, by 0.12pps, hitting 4.45% and confirming again that CPI inflation is on no path to converge to the CB's 3.00% target.

In our view, Deputy Governor Mejía has made several unseasonal assessments of CPI inflation to justify new easing anticipating upcoming disinflation because of weak economic growth and an appreciated currency, despite no evidence to justify its long-lasting projection. Moreover, in his latest interview, the deputy governor argued that the market should look at annualized variations, adjusted to seasonal changes, in the last few (maybe two?) prints; in what we consider to be cherry picking to justify a decision taken without clear evidence from inflationary prints.

Moreover, the new cut will come as analysts raise their 2026 and 2028 year-end CPI inflation forecasts, not anticipating a convergence towards the CB's target over the foreseeable horizon. Indeed, according to Banxico's latest poll among experts, CPI inflation will close this year at 4.38%, outside of the CB's tolerance band, to slow next year but closing the next two years at 3.75%, at the least, way off from the 3.00% punctual target.

Indeed, the market consensus continues to diverge from the CB's inflationary projections, with the bank predicting CPI inflation will close this year at 3.5% and will slow to 3.0% by Q4 2027. Indeed, we insist this forecast has no credibility and is used as a justifying tool by the dovish CB. Given the CB's dovish commitment to cut its policy rate on Thursday, we do not expect a correction of these two unrealistic projections; however, the CB may begin to raise these forecasts since June, as it begins a long pause. Indeed, CB Governor Rodríguez defended the CB's CPI inflation forecast, suggesting the bank may not be looking to revise up its projections in the May 7 sitting.

We are confident deputy governors Jonathan Heath and Galia Borja will not back a rate cut in May, given inflationary pressures and poorly anchored expectations. However, Heath is set to leave the CB's board at the end of the year, ending the term of the more hawkish voice at the CB and the only one willing to call out his colleagues for unsound projections and overoptimistic assumptions. Picking a more dovish board member, as we anticipate, should be a crucial step to further weaken the already feeble credibility of the CB's autonomy, in our view.

We anticipate President Claudia Sheinbaum will nominate someone with technical credibility to take Heath's seat, probably from within the own CB. However, this will not be enough to preserve the CB's credibility, given the unwavering commitment to cut the policy rate by the bulk of the MPC despite no evidence CPI inflation is falling, poorly anchored expectations and lingering core pressure up, in our view. Indeed, Deputy Governor José Gabriel Cuadra (with a solid technical background) has been a disappointment to us, backing constant easing and turning a blind eye to lingering inflationary pressure.

We expect this rate cut will conclude the easing cycle for now, not anticipating any policy rate moves through the rest of 2025. Indeed, a failure to meet the CB's inflationary target in the visible horizon should push the CB to raise its rate over the next 18 months or so, in our view; however, do not expect this to occur, as the CB is clearly comfortable with inflation holding constantly above its own target, perhaps hovering near 4.00%.

Still, one thing to watch in coming sittings is whether the dovish side of the board buys the arguments made by Deputy Governor Omar Mejía in his latest interview, claiming the policy rate might not be in neutral territory despite the own CB's estimates, saying the mathematical calculations need to be looked at in the current context. Other board members joining this questionable take would suggest the CB may cut its policy rate earlier than anticipated.

Overall, while we see no conditions to cut the policy rate in May, we are confident the CB will agree to a 25bps cut in a 3-2 vote. Doing so will agree with the dovish commitment shown in the March sitting, when the board cut its policy rate despite evident inflationary pressure. Thereafter, we expect the CB to sit on its policy rate at 6.50% through the rest of 2026. We are not confident the CB will not look to ease further in 2027, despite the market consensus suggesting the rate will not fall further. We believe the CB's inflation-targeting credibility has waned and will continue to weaken moving forward.

• M/M decline due to a drop in foreign assets of commercial banks, which was exacerbated by rising liabilities
• EGX recorded capital outflows of USD 1.7bn and USD 2.0bn in Feb and Mar
• Exit of portfolio investors was orderly throughout March, portfolio outflows reversed in April

The Net Foreign Assets (NFA) of the banking system (banks + CBE) fell by strong EGP 149bn or 11.3% m/m to EGP 1,165bn as of end-March, following a 5.2% m/m drop in the preceding month, according to data released by the central bank. However, if we take into account the 12% m/m depreciation of the pound, we actually get a much sharper 22.1% m/m drop in the value of NFAs to USD 21.3bn as of-end March. That drop reflects falling assets of commercial banks (-USD 3.6bn m/m) and the central bank (-USD 0.7bn m/m), which was exacerbated by a USD 1.8bn m/m increase in foreign liabilities. We usually attribute the movements in the bank's foreign assets to capital outflows, as the banks take the hit from capital flights. Foreign investors were indeed net sellers of equity and debt instruments through the local bourse, selling net USD 1.7bn in February and another USD 2.0bn in March. Further, more expensive energy imports, external debt payments, and the clearing of energy arrears also dragged on foreign assets in March. However, portfolio outflows reversed in April, and the local bourse recorded a strong USD 2.3bn inflow, so we expect to see a rebound in banks' NFAs next month.

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We remind the system-wide NFAs stood at USD 22bn net liability as of end-February 2024 and their strong improvement since then was due to USD 35bn UAE deal and a surge of portfolio inflows that followed the pound's float and the securing of massive external financing. While this massive inflow of hot money has raised the risks related to capital outflows and roll over risks, Egypt has largely emerged unscathed from the sell-offs that marked 2025 thanks to recent reforms and relatively large external reserves. Not surprisingly, the Iran War triggered capital outflows, but EGX figures and FX reserve data suggest that the capital outflows were orderly and relatively muted during March, before reversing to capital inflows in April.

• Expansion expected to double Egypt's annual production capacity to 600k tons

Egypt signed an agreement with Singapore-based commodities trader Trafigura to expand the Nag Hammadi aluminum complex in a project valued at between USD 750mn and USD 900mn, according to the local press. The investment is expected to add 300k tons of annual production capacity - matching EgyptAlum Company's current output - and thus bringing Egypt's total capacity to about 600k tons a year. The expansion will be carried out through a JV responsible for construction and operations, financed through a mix of equity and loans from international banks. EFG Hermes is acting as financial adviser on the transaction. Under the agreement, Trafigura is expected to supply key raw materials, including alumina, and support marketing through long-term contracts designed to ensure stable cash flows.

PM Madbouly, who attended the signing ceremony, said the deal is part of Egypt's strategy to deepen local manufacturing, strengthen key industries, and maximise returns on state assets through greater efficiency. He added that the government aims to increase exports and modernise industrial operations through capacity expansion and technology upgrades in cooperation with the private sector.

Egyptian Pound gains ground against US dollar by week's end (Ahram)

Egypt's inflation accelerates by 1.2% in April: CAPMAS (Ahram)

Egypt, Singaporean Trafigura ink USD 900 mln aluminium expansion deal in Upper Egypt (Ahram)

Egypt's foreign reserves hit USD 53bn in April: CBE (Ahram)

Egypt targets EGP 3.7tn in investments for FY 2026/27 with 59% from private sector (Ahram)

Egypt's auto sales rise 3.2% m/m in March (Zawya)

Egypt's transit trade leaps 35% YoY in Q1 2026: FinMin Kouchouk (Zawya)

Egypt's tourism grows 21% in 2025, growth continues into early 2026 (Zawya)

Petrojet signs EPCCS deal for Algeria's Hassi Bir Rekaiz Phase II project (Zawya)

Egypt Signs Agreement with BP, Harbour Energy to Develop Mediterranean Oil, Gas (Sada Elbalad)

Egypt posts 5% GDP growth in Jan-Mar (Egypt Today)

Egypt's trade deficit jumps 87.5% y/y to USD 5.1bn in February 2026 (Egypt Today)

Egypt signs Lebanon gas infrastructure rehabilitation agreement through TGS (Egypt Today)

• Exports fell 11.6% y/y driven by fertilizers, plastics, and crude oil exports
• Israel halted gas supplies to Egypt in March, which dragged on industry and LNG exports from Egypt
• Imports jumped 24.7% y/y, driven by gas, iron and steel, and copper
• Trade deficit widened by 3.5% to USD 52bn last year, equal to 14% of GDP
• Egypt highly dependable on gas imports, war in Iran is a major external shock
• LNG imports jumped 81% to USD 8.9bn in 2025 as gas production weakened and demand for electricity rose

The foreign trade deficit soared by 87.6% y/y to USD 5.1bn in February following an increase of 15.0% y/y in January, according to data published by CAPMAS. The increase was due to a strong 11.6% y/y drop in export revenues and a strong 24.7% y/y jump in imports, especially non-oil imports. Imports are generally supported by growing domestic consumption and investments, and February saw increases in gas, iron and raw steel, and copper imports. Needless to say, the War in Iran and the spike in energy and food prices that it triggered is a major shock for Egypt, which has become heavily reliant on gas imports to meet its energy needs. Furthermore, the country has increasingly relied on more expensive LNG imports, making it vulnerable to oil and gas price swings and supply disruptions. On a positive note, Israel restored restored gas supplies to Egypt to their pre-war levels in early April, which should ease some of the pressures on the merchandise petroleum balance. Further, Egypt secured Libyan crude oil shipments, and the crude is very similar to the one produced in Egypt, so the refineries should have no problems adding it to their crude intakes.

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We remind that Egypt recorded a USD 52bn trade deficit in 2025, which accounts for about 14% of GDP. The trade deficit rose by 3.5% on the year as imports rose 8.8% y/y to USD 104bn driven by higher petroleum and non-petroleum imports. Crude oil imports doubled to USD 1.5bn in 2025, fuel imports held steady at USD 10.4bn, but LNG imports soared 81% y/y to USD 8.9bn. As noted, Egypt has become heavily reliant on gas imports to meet its energy needs - Egypt was expected to pay USD 12bn for gas imports in 2026, but that was before LNG prices soared. Meanwhile, wheat imports fell by 20% to USD 3.7bn in 2025. We attribute this decline to rising domestic produce on one hand, and the weak capacity of the military-owned agency that took over the grain import operation from GASC, on the other. Overall, imports have been rising steadily following a major currency reform that boosted private consumption, non-oil manufacturing, and investments. The country, however, remains heavily dependent on food and energy imports, which makes it vulnerable to a prolonged war in the Gulf. Egypt thus needs to continue with the structural reforms in order to make the economy more competitive and to face the more uncertain global trade environment.

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Overall, Egypt's trade goods account remains vulnerable to external shocks as the country relies heavily on imports for non-elastic goods such as food and fuels, while major infrastructure projects and growing urban population have fueled imports. The merchandise oil balance is set to remain in deficit for fourth year in a row in 2026, but at least it seems the country has avoided a crippling energy crisis, at least for now.