Weak CEE activity data, Romania’s FX reserves surge

The batch of hard activity data and surveys released across Central Europe this week were relatively weak and suggest that GDP contracted in most countries again in Q1. Downside risks to Q2 have also increased and we think a fuller recovery in activity is unlikely until much later this year. Meanwhile, the surge in Romania's FX reserves in recent months suggests that the country is currently receiving more in net capital inflows than needed to fund its large current account deficit, allowing the central bank to build reserves and keep the currency stable. But we don't think this is sustainable and we expect the leu to depreciate this year.