In the euro area, key rates expectations have declined. We consider this move and the related decline in German yields as temporary. Inflation is still running hot, leaving central banks in the hot seat. In CEE, the expected economic slump should be confirmed by Q2 GDP data.
The war in Ukraine and (potential) fresh sanctions on Russia (energy price cap) affecting energy supplies remain key for the near-term outlook for the CEE region. Together with the deteriorating situation in the euro area, we expect a significant and larger impact in Central Europe relative to Southeastern Europe. Upside risks to inflation remain but hiking cycles should conclude in the next months or have likely already ended.