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Inflation leaps above 60% Turkey’s headline inflation rate recorded another sharp rise to reach 61.1% y/y in March and it is likely to rise a bit further over the coming months. But there is still little sign that the central bank and, crucially, …
4th April 2022
Hopes of a peace deal fall flat Optimism about the prospect of an end to the war in Ukraine came and went this week. Hopes were raised after negotiators met in Istanbul on Tuesday and Russia said that it would significantly pare back military operations …
1st April 2022
War in Ukraine takes its first toll on the region’s industry Manufacturing PMIs declined across the region in March amid the war in Ukraine, and with supply chain disruptions and price pressures set to intensify, industry looks set to contract in the …
The Czech National Bank (CNB) slowed the pace of its tightening cycle for the third consecutive month today with a 50bp rate hike to 5.00%, but hawkish communications after the meeting suggest that the CNB is not finished yet. We now expect a 50bp hike at …
31st March 2022
Fidesz is looking the most likely to retain power in Hungary’s election this weekend, which will pave the way for four more years of tensions with the EU over the rule of law and raise the likelihood that EU fund inflows are withheld. From a macro …
The war in Ukraine has devasted its economy, while Western sanctions are likely to push Russia into a deep contraction, with GDP set to fall by 12% this year. Immediate fears of a Russian sovereign default have not materialised and Russia’s financial …
30th March 2022
War in Ukraine punctures economic sentiment The EC’s Economic Sentiment Indicators unsurprisingly fell in most countries in March amid the fallout from the war in Ukraine and there were further large increases in price pressures on the back of rising …
There are already clear signs of spillovers in Central and Eastern Europe (CEE) from the war in Ukraine and we think that the overall hit to GDP growth in the region this year will amount to 1.0-1.5%-pts. Our forecasts for growth are generally below those …
29th March 2022
Russia’s financial markets return from the ashes Trading on the Moscow Stock Exchange returned this week, with the central bank allowing trading of sovereign debt from Monday and selected equities from Thursday. Russian markets remain illiquid and there …
25th March 2022
The potential for around 3 million refugees to settle in Central and Eastern Europe (CEE) by the middle of this year will present a large fiscal cost, but will also boost the size of the labour force and GDP in the near term. We estimate that the increase …
23rd March 2022
Hungary’s central bank (MNB) stepped up the pace of tightening today with a 100bp increase in its base rate, to 4.40%, and the hawkish communications underline the view that the central bank will respond to the deterioration in the inflation outlook with …
22nd March 2022
A close look at banking sector linkages in Central and Eastern Europe provides encouragement that there is little direct exposure to Russia and Ukraine and that any indirect exposure through a Western European parent bank is likely to have minimal …
21st March 2022
Activity remains strong, but war in Ukraine casts a dark cloud Activity data for February show that Poland’s economy continued to expand strongly at the start of this year but the war in Ukraine is likely to drag on the recovery through a hit to exports, …
Russia dodges default The saga over whether Russia’s government would make coupon payments on two Eurobonds this week seems to have been settled for the time being. At least some creditors are reported to have received payments (albeit a little late). …
18th March 2022
The post-meeting speech by Russia’s central bank (CBR) governor Elvira Nabiullina made clear that policymakers think sanctions and autarky are here to stay for the long term. But at the same time, officials at the CBR appear to want to revert back to …
Russia’s banking sector has held up better than might have been expected through the initial stage of the crisis due to large, timely and widespread policy support. But banks will now face the challenge of rising loan losses. While the capital buffers of …
16th March 2022
Russia’s government appears to be heading towards a default on its foreign currency debts for the first time since the Bolshevik revolution. This won’t affect the Russian government’s ability to finance itself (beyond what sanctions have already done) and …
14th March 2022
Russia’s economy is in the early stages of a deep recession and we’ve revised our forecast for GDP to collapse by 12% this year. We’ve also revised our forecasts for Central and Eastern Europe as a result of the war in Ukraine with inflation set to be …
11th March 2022
Downturn at the start of 2022 Turkey’s latest activity figures confirm that the economy entered a downturn at the start of this year as the surge in inflation triggered a further drop in retail sales and weaker domestic demand started to weigh on …
The US and UK energy embargos will reduce Russian exports by just 0.6% of GDP, but adding in the EU’s plan to reduce Russian natural gas imports takes the total loss of export revenues closer to 2% of GDP. Coming alongside growing evidence of a more …
10th March 2022
It is highly likely that the war in Ukraine will accelerate Russia’s shift towards isolation and into autarky. (See here .) This will prevent Russia from catching up with more advanced economies, while the West will face some difficult choices as higher …
Inflation picks up further with sharp acceleration in sight Russian inflation rose to 9.2% y/y in February and, more importantly, the weekly CPI figures up to 4 th March (also just released) show that the collapse in the ruble led to a particularly sharp …
9th March 2022
The growing list of countries imposing restrictions on Russia’s energy exports has raised the likelihood of a deeper contraction in Russia’s economy this year and a wave of corporate defaults. This Update provides a primer on the composition of …
The National Bank of Poland (NBP) stepped up the pace of tightening today with a 75bp interest rate hike, to 3.50%, and the marked deterioration in the inflation outlook due to the war in Ukraine is likely to mean that rates rise much further in the …
8th March 2022
We think that a complete ban on Russian energy imports would cause the prices of Brent crude oil and European natural gas to surge to $160pb and €300/MWh in the near term and settle at still very high levels into next year. The Russian economy would …
7th March 2022
Events in Russia this week have clearly upturned the outlook completely and the growing possibilities of default, a banking crisis and restrictions on energy exports could cause the downturn to spiral. Russia’s financial markets have been in chaos this …
4th March 2022
While supply-chain links between the EU and Russia and Ukraine are small, shortages of seemingly obscure inputs can cause significant disruption, and add to price pressures, if alternatives cannot be sourced quickly. Aside from the most energy-intensive …
3rd March 2022
Inflation smashes through 50% Turkey’s headline inflation rate leapt again to reach 54.4% y/y in February due to the combination of the lira’s collapse in late-2021 as well as higher domestic energy prices and a large minimum wage hike at the start of …
Russia has already suspended the transfer of coupon payments on local-law sovereign debt to foreign investors, and the likelihood that the government and companies are unable or unwilling to make external debt repayments (besides those already affected) …
2nd March 2022
The spread of Russian interbank interest rates over the central bank’s policy rate – which was hiked aggressively on Monday – has widened pointing to some stress in the banking sector. But for now it is far from the levels recorded during 2008/09 and …
The EU would have a number of options to help compensate if Russian gas supplies were to be turned off, but in practice we suspect that some degree of power rationing would be needed. Past episodes of energy rationing were not as damaging as one might …
1st March 2022
The ratcheting up of Western sanctions, alongside a tightening of financial conditions and the prospect of a banking crisis, mean that Russia’s economy is likely to experience a sharp contraction this year. The outlook of course remains incredibly …
Industry faring well as price pressures ease Manufacturing PMIs in February generally pointed to strong manufacturing conditions in the region, but the escalation of conflict in Ukraine adds to the clear downside risks to industry over the coming months. …
New sanctions on Russia have led to a sharp plunge in the ruble, and an effective freeze of most of the country’s financial markets. We think that the outlook now depends mainly on the extent to which this marks the start of an enduring break in Russia’s …
28th February 2022
In this Update , we answer the key questions about what the exclusion of Russian banks for SWIFT means for Russia and the rest of the world. What is SWIFT? SWIFT (“The Society for Worldwide Interbank Financial Telecommunication”) provides payments …
The sanctions imposed on Russia’s central bank freeze a significant portion of its foreign currency assets, rendering at least half largely unusable. The sharp tightening of capital controls today will remain the order of the day for some time, but …
The ratcheting up of Western sanctions over the weekend has left Russian banks on the edge of crisis. They face both large deposit withdrawals and the prospect of a rise in non-performing loans, which are likely to cause credit conditions to tighten and …
Robust performance, but downturn likely at start of 2022 Turkey’s economy weathered the initial fallout from the currency crisis well, with GDP rising by 1.5% q/q in Q4 of last year, but a downturn is likely at the start of this year. The Russia-Ukraine …
Russia’s invasion of Ukraine on 24 th February will have significant and far-reaching implications for some time to come. The situation on the ground is still in flux and the endgame is simply unknown at this stage. But as we explained in our reaction to …
25th February 2022
Russia’s military invasion of Ukraine has caused turmoil in financial markets across the region. Western nations have imposed sanctions on Russia, including targeting some of its largest banks and their access to the international financial system. …
The latest Western sanctions on Russia will hit its economy hard through tighter financial conditions and reduced trade, and might plausibly hit GDP by 1-2%-pts. But sanctions stopped short of the more damaging scenario – both for Russia and Europe – in …
Russia’s decision to send troops to eastern Ukraine has prompted US sanctions on the two breakaway Ukrainian regions, and Western governments are lining up further measures that would hit Russia itself. But there is a wide range of sanctions that could be …
22nd February 2022
The strength of the latest activity, labour market and inflation data prompted a shift in guidance from the Bank of Israel today in which it said that it may start a tightening cycle in the coming months. We think the firing gun will be started in April …
21st February 2022
Economic activity continued to thrive in January Poland’s economic recovery continued to motor along at the start of this year as industrial production and retail sales growth picked up sharply in January. This came alongside further signs of an …
Strong rebound in GDP supports case for “higher for longer” interest rates The 4.7% expansion in Russian GDP in 2021 is consistent with a marked acceleration in growth in Q4. We expect the recovery to slow this year but the backdrop of a large and …
18th February 2022
Another week of Russia-Ukraine tensions Russia-Ukraine tensions dominated the headlines again this week and financial markets whipsawed on concerns about an imminent invasion and reports of shelling in eastern Ukraine. But an announcement by President …
The further rise in inflation to close to 50% y/y in January was clearly not enough to sway Turkey’s central bank (and crucially, President Erdogan) to shift back to orthodoxy as the one-week repo rate was left at 14.00% at today’s MPC meeting. We expect …
17th February 2022
The rest of Emerging Europe is particularly exposed if a further escalation of Russia-Ukraine tensions lead to higher global energy prices and disruptions to commodity exports, with Bulgaria and the Baltic States most at risk from possible interruptions …
16th February 2022
Ukraine’s economy as a whole is in a better position to weather significant capital flight and sharp falls in the hryvnia than at any point in the past decade. But even so, there are key pockets of vulnerability that could be exposed if there is a major …
Rapid acceleration bolsters case for interest rate hike Israel’s economic recovery unexpectedly accelerated at the end of last year, with the 16.6% annualised rise in GDP in Q4 pushing it far above its pre-pandemic trend. Alongside the rise in inflation …
