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Tensions between Russia and the West have intensified and rattled global financial markets. Amidst the uncertain situation, this Update brings together some of the key implications of the crisis for Russia, Ukraine and the rest of Emerging Europe . (See …
15th February 2022
Strong end to Q4 but headwinds will put the brakes on recoveries Q4 GDP data for Central and Eastern Europe (CEE) were generally stronger-than-expected as policymakers responded to virus outbreaks with only light-touch restrictions and easing supply …
Adam “the hawk” Glapinski takes flight Comments from Poland’s central bank Governor Glapinski this week that the NBP will do whatever it takes to tackle inflation underline the hawkish shift from the NBP this year. This supports our view that interest …
11th February 2022
Russia’s central bank (CBR) maintained the pace of its tightening cycle today with another 100bp interest rate hike, to 9.50%, and the hawkish communications suggest that the cycle will not stop until the CBR has confidence that inflation has peaked. This …
Consumer-led sectors drive downturn at end of 2021 Turkey’s latest activity figures suggest that easing supply constraints and the boost to competitiveness from a weak lira supported industry in December, but household spending suffered as the currency’s …
Inflation continues to rise, another large rate hike incoming The latest data show that Russia’s economy grew strongly in December and that consumer price inflation rose to 8.7% y/y in January. The inflation reading was weaker than expected, but inflation …
9th February 2022
The National Bank of Romania (NBR) accelerated its tightening cycle today with a 50bp hike to its key policy rate (to 2.50%) and, with inflation firmly above the central bank’s target, we think this cycle has plenty more room to run. We now expect the …
The National Bank of Poland (NBP) raised its policy rate by another 50bp, to 2.75%, at today’s meeting and, while there was little change in language in the statement, we think a backdrop of strong wage and price pressures will prompt further hikes to …
8th February 2022
Weak lira not having the desired trade effect? The latest indicators raise concerns that the boost to Turkey’s competitiveness from a weak lira that the government has been banking on as part of its new growth model may not be having the desired effect. …
4th February 2022
The Czech National Bank (CNB) slowed the pace of its tightening cycle for the second consecutive month today and the accompanying communications were less hawkish than expected and suggest that there is little appetite for much more significant …
3rd February 2022
Back to the early 2000s Turkey’s headline inflation rate rose to a stronger-than-expected 48.7% y/y in January due to the effects of the recent collapse in the lira and large hikes to energy tariffs and it is likely to stay close these high rates …
Supply disruptions continue to ease but price pressures mount The strong 0.9% q/q expansion of Czech GDP in Q4 is consistent with data showing a recovery in industry and we think this is likely to continue this year. Meanwhile, more timely manufacturing …
1st February 2022
Figures consistent with a strong rebound in Q4 The larger-than-expected 5.7% increase in Polish GDP over 2021 as a whole is consistent with another large expansion in Q4 and meant that the economy recovered faster than most other European economies from …
31st January 2022
CBRT puts emphasis on “lira-isation” The upward revision to the Turkish central bank’s inflation forecast in its Q1 Inflation Report this week, from 11.8% y/y to 23.2% y/y for end-2022, was just a matter of catching up with reality. The lira has sunk 30% …
28th January 2022
Sentiment holds up well at the start of the year The EC’s Economic Sentiment Indicators for January generally showed sentiment in Central and Eastern Europe holding up across all sectors of the economy. With Omicron waves likely to peak in the coming …
Industry across Emerging Europe turned a corner in Q4 as auto production rebounded strongly. This comes amid signs that supply shortages are starting to ease; our proprietary shortages dashboard suggests that product shortages may have peaked. We think …
27th January 2022
The sell-off in Russia’s financial markets in response to the reassessment of the likelihood of conflict with Ukraine has pushed up the risk premium on Russian assets to a similar level to that which followed the annexation of Crimea in 2014. There is …
A solid end to 2021 The latest activity data in Poland show that industry expanded strongly in Q4 but that the shine came off the retail sector amid falling consumer sentiment and surging inflation. We think that GDP expanded by around 6.8% y/y (1.1% q/q) …
24th January 2022
Ukraine’s markets in for a tough few months A positive reaction to today’s talks between the US and Russia may have brought some relief but, even if a renewed conflict doesn’t materialise, local markets are likely to face a difficult few months. Tensions …
21st January 2022
Overview – We expect regional GDP growth to come in below expectations this year as high inflation erodes households’ real incomes and policy becomes more restrictive. Despite this view on the growth outlook, we think that persistent capacity constraints …
20th January 2022
Turkey’s central bank (CBRT) followed kept its one-week repo rate on hold at 14.00% today and, even though inflation is likely to breach 40% in the coming months, President Erdogan is unlikely to permit interest rate hikes. We think it’s more likely that …
The “new economic model” adopted by Turkey’s government is likely to mean low real interest rates and a persistently weak lira, but it will come alongside a shift towards capital controls, ever higher inflation and growing fiscal and banking sector risks. …
18th January 2022
The deadlocked end to talks between Russia, the US and NATO and subsequent hawkish noises from Russian officials have caused a risk premium to emerge on Russian asset prices and will keep the prospect of tighter Western sanctions on the table. The …
14th January 2022
Russia-Ukraine tensions hit a new crisis point A tense week of negotiations between Russia, the US and NATO have ended with what now seems to be a more serious ratcheting up in tensions that is likely to weigh on local financial markets for some time. The …
Economy solid in November, but crisis to trigger fresh downturn Turkey’s industrial production and retail sales figures for November suggest that the economy held up relatively well in the middle of Q4. But the effects of the recent currency crisis are …
13th January 2022
Inflation stabilises, but rate hike cycle not over yet Russian inflation held steady at 8.4% y/y in December, but we think it will rise a bit further this month and prompt the central bank to deliver a final 75bp rate hike, to 9.25%, at its meeting next …
12th January 2022
We think GDP growth will come in below expectations this year. Even so, inflation will ultimately settle at a higher level than is currently appreciated and this feeds into our hawkish interest rate forecasts. We expect currencies to struggle in an …
10th January 2022
NBP defiant in the face of rising wage growth Poland’s central bank continued its tightening cycle this week, but recent comments from policymakers have made us more concerned that it is failing to appreciate the extent, persistence and possible …
7th January 2022
Industrial sentiment stabilises but restrictions weigh on services sector The EC’s Economic Sentiment Indicators for December showed that the Eastern European economies rebounded last month as Delta virus waves abated, but Central Europe saw further …
With central banks across Central and Eastern Europe (CEE) raising interest rates to tackle inflation, we think the risks of a wage-price spiral are low. Even so, persistently above-target inflation, tight labour market conditions and strong domestic …
5th January 2022
The National Bank of Poland (NBP) raised its policy rate by another 50bp, to 2.25% today and we expect at least another 75bp of tightening, to 3.00%, in the next few months. But with energy bills set to surge and wage pressures strengthening, the risks …
4th January 2022
The Czech National Bank (CNB) hiked rates by 100bp (to 3.75%) today and Governor Rusnok struck an incredibly hawkish tone after the meeting. The tightening cycle clearly has further to run and we now think the CNB will bring interest rates to 4.50% by …
22nd December 2021
A new scheme announced by Turkey’s President Erdogan last night, which compensates holders of lira deposits for exchange rates losses, has triggered a sharp rally in the lira and will help to mitigate some of the risks that had started to crystalise in …
21st December 2021
Inflation pressures have shown no signs of letting up across Emerging Europe, with headline inflation rates surging to multi-year highs in November. Producer price inflation has hit rates not seen in decades, food inflation continues to surge and strong …
20th December 2021
Following yesterday’s interest rate cut in Turkey, the lira has plunged again and is now faring worse than other Emerging Europe currencies have done during recent sudden stops. There are some signs of stress emerging in the banking sector. These aren’t …
17th December 2021
Poland: overheating fears, but NBP stepping up Concerns that Poland’s economy is overheating will have only been reinforced by figures this week that showed a surge in nominal wage growth and a sharp widening of the current account deficit in October. But …
Russia’s central bank (CBR) stepped up the pace of its tightening cycle today with a 100bp interest rate hike, to 8.50%, and the hawkish communications reinforce the message that it will not hesitate to raise interest rates further. We now expect a 75bp …
Turkey’s central bank shrugged off a currency crisis, rising inflation as well as the recent hawkish turn from the Fed and remained obedient to President Erdogan by cutting its one-week repo rate by another 100bp, to 14.00%, today. The accompanying …
16th December 2021
The decision by Hungary’s central bank (MNB) to raise its base rate by 30bp, to 2.40%, at today’s meeting is largely symbolic. The key point is that the central bank struck a clear hawkish tone and will continue to push up interbank interest rates …
14th December 2021
Strong start to Q4, but currency crisis to hit activity before long Turkey’s industrial production and retail sales data for October suggest that the economy made a strong start to Q4, but these predate the recent currency crisis and we think the economy …
13th December 2021
Sanctions threat rears its ugly head again The newswires have been abuzz this week with reports of a potential Russian military conflict with Ukraine and a renewed threat of US sanctions. The proposed sanctions are at the more aggressive end of the …
10th December 2021
The National Bank of Poland’s decision to slow the pace of its tightening cycle with a 50bp interest rate hike (to 1.75%) seems a bit inconsistent with its more hawkish tone on inflation in the accompanying press statement. Even so, we think the backdrop …
8th December 2021
Another 75bp hike on the cards next week The rise in Russian inflation to 8.4% y/y last month reinforces our view that the central bank will hike the one-week repo rate by 75bp (to 8.25%) when it meets in December – that’s a larger hike than the current …
Banking sectors in Emerging Europe have come through the pandemic with few scars and vulnerabilities generally remain low, but we identify three potential areas of concern, including deposit dollarisation in Turkey, frothy lending growth in Russia as well …
7th December 2021
This Update answers some of the most common questions that we have received from clients during Turkey’s recent turmoil. In short, the economic fallout doesn’t look like it will be as bad as it was after the 2018 crisis. However, policymakers look less …
Omicron not yet likely to stop further rate hikes One of the key talking points this week has been the spread of the Omicron variant, which has sparked renewed fears about the effectiveness of vaccines and tighter restrictions. Recoveries are likely to …
3rd December 2021
The history books show that currency crises in other parts of the emerging world in recent decades have resulted in peak-to-trough falls in GDP of around 8% on average and pushed headline inflation up by 25%-pts from its latest trough. The latest crisis …
Inflation rises again, set to breach 25% soon The rise in Turkey’s headline inflation rate to 21.3% y/y in November will almost certainly be followed by further chunky increases over the coming months that take it to 25-30% as the effects of the recent …
Poland’s industrial sector as a whole has shaken off widespread materials shortages in recent months, in part due to its more diversified sectoral make-up than the rest of CEE. But it also reflects the fruits of recent investments into new production …
2nd December 2021
Patchy start to Q4, but risks loom large Russia’s economy made a mixed start to Q4 as industrial production recovered while retail sales growth slowed sharply. With the country’s severe virus outbreak and low vaccine coverage set to keep virus …
1st December 2021
