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Turkey doubles down on unorthodoxy The surprise interest rate cut by Turkey’s central bank this week, despite inflation reaching close to 80% y/y in July, threatens to sow the seeds of the next currency crisis. After all, Turkey’s external position is …
19th August 2022
The war in Ukraine is dragging on, but there is now growing attention on the country’s eventual reconstruction. We think the government’s target of $750bn of total funding is unlikely to be met ($300-400bn seems more realistic). The primary focus of the …
Turkey’s central bank stepped up its fight against economic orthodoxy by cutting its one-week repo rate by 100bp, to 13.00%, despite the backdrop of inflation at 80% and an extremely poor external position. This latest move could prove to be the trigger …
18th August 2022
A mixed performance, with Poland getting the wrong headlines GDP in Hungary and Romania continued to expand strongly in Q2 by 1-2% q/q, but the Czech and Slovakian economies barely grew at all and there was a shocking 2.3% q/q contraction in Poland. …
17th August 2022
Economy comes roaring back The stronger-than-expected 6.8% q/q annualised expansion in Israel GDP in Q2 confirms that the Q1 contraction was just a blip. Economic activity remains strong and alongside the red-hot inflation figures for July, the risks are …
16th August 2022
Sanctions take their toll with historic fall in GDP Russian GDP contracted by 4% y/y in Q2, consistent with a fall of 6% in seasonally-adjusted q/q terms – a much better performance than analysts had expected and than had seemed likely a few months ago. …
12th August 2022
Hungary’s fiscal adjustment in full swing Hungary’s government has tightened the fiscal purse strings much more quickly than had looked likely since April’s election. This is positive as far as Hungary’s macro imbalances are concerned. But it is bad for …
Growth remained strong in Q2 Turkey’s activity figures for June painted a mixed picture, with industrial production continuing to post solid growth but retail sales suffering a fresh knock. The bigger picture, however, is that the economy appears to have …
Inflation pressures nowhere to be seen Russia’s month-on-month deflation deepened in July as consumer prices fell by a larger-than-expected 0.4% m/m (in y/y terms, the headline rate eased to 15.1%). The disinflationary impact of the strong ruble is likely …
10th August 2022
EU funds will provide a key boost to economies in Central and Eastern Europe (CEE) in the coming years as the region navigates a challenging macro environment and slowing global growth. Disputes with the European Commission over the rule of law in Hungary …
With Russia tightening its squeeze on supply of gas to Europe, governments are turning their attention to other major gas exporters such as Qatar to try to fill the gap. But Qatar’s gas sector is already operating close to capacity and, while the North …
9th August 2022
The tide is turning on monetary policy in CEE The decision by the Czech central bank to keep its policy rate on hold this week, while Romania’s hiked rates, is representative of a growing divergence between central banks in the region. Poland’s central …
5th August 2022
The Czech National Bank (CNB) became the first major EM central bank to end its tightening cycle after it left its policy rate on hold at 7.00% today. The communications were not as dovish as we had expected, but the new-look MPC is clearly less inclined …
4th August 2022
Western sanctions have caused activity in certain sectors of Russia’s economy to collapse, but activity has held up reasonably well in key areas such as oil production and less import-dependent manufacturing. What’s clear, though, is that the full effect …
3rd August 2022
Inflation close to a peak, but will remain high The modest rise in Turkey’s headline inflation rate to 79.6% y/y in July suggests that inflation is nearing a peak, but it will remain close to these very high rates for several more months and will be slow …
PMIs point toward a contraction in industry Manufacturing PMIs for July fell to levels consistent with contractions in industrial production in Q3, with the exception of in Russia, where the downturn in manufacturing seems to have stabilised. There was an …
1st August 2022
Russian gas cut off raises energy supply risks The news flow this week continued to be dominated by concerns about energy supply this winter after Gazprom reduced gas exports to Europe further. The immediate consequence will be higher energy bills and an …
29th July 2022
Weakness in Q2, contraction likely in Q3 The 0.2% q/q expansion of Czech GDP in Q2 beat the consensus expectation for a small contraction, but it was roughly in line with what we had expected, and still marked a sharp slowdown in growth from Q1. We think …
The economic outlook has deteriorated across the region. Inflation is soaring and monetary conditions are tightening, which is weighing on households’ real incomes and spending power. The latest surveys show consumer confidence tanking and economic …
28th July 2022
Sentiment falls further, but price pressures show signs of easing The EC’s Economic Sentiment Indicators for Central and Eastern Europe showed declines across the region and across sectors in July, supporting our view that economies in the region are in …
Data pointing to a 9% contraction in Q2 The Russian industrial production figures for June were surprisingly strong, which likely reflects a pick-up in oil production. But retail sales remain depressed and show no sign of a turnaround. Our provisional …
27th July 2022
The decision by Gazprom to cut natural gas supplies to Europe to 20% of capacity has caused gas prices to surge and raised the risk of energy shortages during the winter. A full gas cut-off would result in self-inflicted pain for Russia. For the rest of …
Default and devaluation in Ukraine Policymakers in Ukraine devalued the hryvnia this week and asked creditors to suspend debt repayments, which will free up funds for the government, but will add to inflation and increase balance sheet problems elsewhere …
22nd July 2022
Romania’s current account deficit is likely to rise to almost 9% of GDP this year. While a weaker currency would help to reduce this shortfall, structural reforms are needed to boost competitiveness in the long term. Until then, Romania’s deteriorating …
21st July 2022
Economy now gripped in a slowdown The weak set of Polish industrial production and retail sales figures for June provide the strongest evidence yet that the economy is in the midst of a sharp slowdown. It is very likely that GDP contracted in q/q terms in …
Overview – Economies in Emerging Europe were resilient in the first half of this year, but the outlook has deteriorated markedly as headwinds have strengthened. Inflation is likely to continue rising and we think that GDP will do little more than stagnate …
20th July 2022
Energy rationing now a growing downside risk Governments ramped up efforts this week to prevent possible shortages of energy during the winter. But with the threat of lower Russian gas flows increasing, there is a growing risk of energy rationing that …
15th July 2022
Activity surpassing pre-currency crisis levels Turkey’s activity figures for May show that industrial production and retail sales have now both surpassed their highs from late-2021 despite the weight of sky-high inflation. With strong demand and high …
14th July 2022
The 200bp increase in the base rate (to 9.75%) by Hungary’s central bank (MNB) today has resulted in the most aggressive amount of monetary tightening in decades. With fiscal policy tightening too and the euro-zone on the verge of recession, all the signs …
12th July 2022
Inflation continues to drop back The further decline in Russia’s headline inflation rate to 15.9% y/y in June confirms that inflation has already passed its peak and we expect price pressures to ease further over the coming months. This is likely to …
8th July 2022
MNB pulls out all of the stops to support the forint Hungary’s economy is now under substantial pressure. The forint has slumped and interest rates have been hiked aggressively. The only way through this is to accept the pain of a weak currency and …
Surging global commodity prices have hit Central and Eastern European economies like a tsunami in recent months, causing a severe terms of trade shock and current account deficits to blow out. These deficits are likely to widen to 7% of GDP in Hungary and …
6th July 2022
The Bank of Israel (BoI) stepped up the pace of tightening today with a 50bp interest rate hike, to 1.25%, as it dropped its commitment to “gradual” interest rate hikes. This suggests that similar moves may be in the pipeline and supports our hawkish view …
4th July 2022
Threat from Turkey’s corporate FX debts grows Plans announced late last week by Turkey’s banking regulator add to the growing risks stemming from corporates’ large FX debt burdens. Late last Friday, the regulator announced that corporates will no longer …
1st July 2022
Further signs of manufacturing weakness Manufacturing PMIs for June showed further weakness across the region with the exception of Russia, which seems to have benefitted from a shift from imports toward domestic production. There were some encouraging …
Ukrainian refugees have boosted labour forces and consumer spending across Central and Eastern Europe (CEE) since the outbreak of the war, but this could prove short-lived if the conflict remains concentrated in Eastern Ukraine and more refugees return …
30th June 2022
Clearer signs that the economy has stabilised The latest Russian data for May suggest that activity, having declined sharply after Western sanctions were imposed in March, has started to stabilise. Some sectors of manufacturing have benefited from a shift …
29th June 2022
Inflation has continued to beat expectations across Emerging Europe over the past month, reaching rates not seen in decades in most countries. It is now weighing more heavily on consumer confidence, and the surprise inflation releases for May prompted …
Sharp fall in sentiment as recovery starts to slow The EC’s Economic Sentiment Indicators for Central and Eastern Europe showed broad-based declines in sentiment across the region and across sectors in June to levels not seen in a year. Economic activity …
The G7 proposal to impose a cap on the price of Russian oil and gas would introduce new supply-side risks by potentially disrupting Russian energy supplies. This could push global energy prices up further, but for now we still see Brent crude prices …
28th June 2022
Hungary’s central bank (MNB) stepped up the pace of tightening today with a much larger-than-expected 185bp increase in its base rate, to 7.75%, and the hawkish communications underline the view that further large rate hikes are likely to be delivered …
Russia’s government has now reportedly defaulted on its foreign-currency denominated debt for the first time since 1918, but this is a largely symbolic event that is unlikely to have an additional macroeconomic impact. Sanctions have already done the …
27th June 2022
Israel and Bulgaria heading for elections (again!) Governments in Israel and Bulgaria collapsed this week, although the threat to Bulgaria’s economy is probably greater as political instability puts EU fund inflows and the ability to secure gas supplies …
24th June 2022
High inflation, falls in the lira and aggressive monetary tightening elsewhere are clearly not enough to persuade Turkey’s central bank to lift interest rates, as it left its policy rate at 14.00% today. Disorderly falls in the lira are a major risk, …
23rd June 2022
Central and Eastern European economies are experiencing their worst bout of inflation since the late-1990s as surging food and energy prices have added to strong core price pressures across a broad range of goods and services. Monetary tightening cycles …
20th June 2022
Assessing the risks from a more hawkish US Fed The 75bp interest rate hike by the US Fed this week and expectations for further large hikes in the coming months have caused turmoil in global markets and will have ripple effects across Emerging Europe. We …
17th June 2022
The recent falls in the Turkish lira have led to increased speculation that, with the CBRT showing no sign of willingness to raise interest rates, policymakers will be forced to turn to capital controls to prevent sharp and disorderly moves in the …
16th June 2022
Israel’s labour market has tightened significantly in recent months and while there is so far little sign of a burst of wage pressure coming through, this is likely to be in the pipeline and feed through into stronger core inflation next year. Alongside a …
14th June 2022
Economy’s robust performance continues Turkey’s activity figures for April suggest that the economy has held up well since last year’s currency crisis, but robust activity has added to inflation pressures and contributed to the widening of the current …
13th June 2022
Turkey: anything but rate hikes The Turkish lira remained under pressure this week and officials unveiled on Thursday a raft of measures aimed at tackling inflation and bolstering the currency. The Treasury revealed that it will issue lira-denominated …
10th June 2022
