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Supply problems and price pressures continue to build The manufacturing PMIs showed that supply problems intensified in March, and this continued to push up price pressures. While supply disruption also artificially pushed up the headline PMIs, there are …
1st April 2021
Past experience suggests that, with inflation near a peak and the economy slowing (alongside pressure from President Erdogan for lower interest rates), Turkey’s central bank will push ahead and ease monetary conditions in the coming months . Last week we …
31st March 2021
Sentiment increases in March, but unlikely to last The EC’s Economic Sentiment Indicators (ESIs) showed an improvement across most of Central and Eastern Europe in March, despite a surge in virus cases across the region. That said, sentiment in Czechia …
30th March 2021
Third waves, lockdowns and new GDP forecasts The rise in virus infections, extension of containment measures, growing headwinds to the auto sector and slow pace of vaccination means that we are revising down our GDP forecasts in Central Europe this year. …
26th March 2021
The upheaval at Turkey’s central bank means that we now expect a 200bp interest rate cut next month followed by further aggressive easing in the second half of 2021. But the result is that inflation will stay high and the lira will fall much further, to …
Emerging Europe has been at the heart of the shift in EM monetary policy over the past month, with central banks in Russia, Turkey and Ukraine raising interest rates in March. The triggers for tightening were largely home grown in nature, including a …
25th March 2021
The replacement at the helm of Turkey’s central bank is particularly worrying against a backdrop of a dire balance of payments position, large dependence on foreign capital inflows and the central bank’s severely depleted foreign exchange reserves. If …
23rd March 2021
Hungary’s central bank (MNB) left its key interest rates on hold today but the tone of the communications could not have been much more hawkish without raising interest rates. The MNB is defending its view that inflation will settle back to the 3% target …
The abrupt sacking of Turkey’s central bank (CBRT) governor on Friday has triggered sharp falls in the lira and a tightening of external financing conditions. The banking sector is a key source of vulnerability and arguably looks more exposed than it was …
22nd March 2021
The shock decision by Turkey’s President Erdogan to sack central bank governor Naci Agbal late on Friday is likely to trigger large falls in the lira when markets open on Monday. It looks like the central bank’s (CBRT’s) efforts to fight the country’s …
20th March 2021
Economy struggling to gain momentum Russian industrial production and retail sales figures for February are consistent with GDP falling by around 4.0% y/y at the start of the year. The economy is struggling to gain momentum and, with the vaccine rollout …
19th March 2021
US-Russia relations reach a new low Comments from US President Joe Biden this week threatening to take a tougher stance against Russia have raised the prospect of tighter US sanctions that could deal a significant blow to Russian markets. Mr. Biden’s …
Russia’s central bank (CBR) unexpectedly hiked its key policy rate by 25bp to 4.50% at today’s meeting in response to the recent surge in inflation and the accompanying communications sent a strong signal that it is prepared for an aggressive tightening …
Industry disruptions and virus waves stall the recovery The latest Polish activity data for February were a little weaker than expected which, combined with the growing headwinds to the industrial sector and the reimposition of virus containment measures, …
Turkey’s central bank didn’t disappoint investors, delivering a larger-than-expected 200bp interest rate hike (to 19.00%) today, and we think that it will keep monetary conditions tighter than most expect over the next couple of years. That will provide a …
18th March 2021
The renewed surge in virus cases and tightening of restrictions across Central Europe will deal a heavy blow to the recovery in the first half of this year. Meanwhile, slow vaccine rollouts mean that the ‘vaccine bounce’ that we had anticipated from Q2 …
17th March 2021
Turkey’s central bank (CBRT) looks set to hike interest rates further this week, and the experience from other EMs suggests that it will need to keep real interest rates elevated for several years to bring inflation down on a sustained basis. Lowering …
15th March 2021
Turkey’s current account on an improving trend Current account figures out of Turkey this week were a bit worse than expected but the underlying trend suggests that the economy is rebalancing. This, coming alongside a further interest rate hike next week, …
12th March 2021
Industry going strong The Turkish activity figures for January suggest that the economy held up relatively well despite the tightening of COVID-19 containment measures around the turn of the year. And there are encouraging signs that the rise in interest …
The disruption to auto production caused by semiconductor shortages is yet another reason (alongside tight COVID-19 restrictions) to expect growth in Central and Eastern Europe (CEE) to struggle in H1 2021 . Since late 2020, global shortages of …
10th March 2021
A series of strong inflation readings in Russia have put the central bank’s ability to meet its inflation target over the next year under threat and brought forward the prospect of monetary tightening. We think the central bank will use its meeting on 19 …
Acceleration in inflation poses a serious question to the CBR The larger-than-expected rise in Russian inflation to a more than four-year high of 5.7% y/y in February is likely to be followed by another increase in March which poses a serious challenge to …
5th March 2021
CBRT: hiking again Events this week make another interest rate hike by the Turkish central bank highly likely – we now expect a 100bp rise in the one-week repo rate (to 18.0%) at the meeting on 18 th March. Two factors lie behind this shift. The first was …
The Polish central bank’s latest forecasts, published this afternoon, tell a story in which the economic recovery will strengthen over the coming years and inflationary pressures will pick up strongly. But we think that policymakers will tolerate higher …
3rd March 2021
Inflation at its peak, but a fresh lira sell-off could prompt rate hikes The stronger-than-expected rise in Turkey’s headline inflation rate, to 15.6% y/y in February, is likely to mark the peak and we expect inflation to fall steadily over the next six …
The full breakdown of Q4 GDP data for Central Europe showed that net trade exerted a drag on growth in Poland while it provided a boost to Czechia and Hungary. But looking ahead, mounting headwinds to the recovery mean that we now expect GDP to grow only …
2nd March 2021
Supply problems cause input price pressures to build The manufacturing PMIs for February showed strong increases in output and new export orders in Poland and Russia, while manufacturing conditions deteriorated in Turkey and Czechia. The survey also …
1st March 2021
Recovery faltering at tail end of 2020 Turkey’s economy continued to recover in Q4 2020 and was one of the few economies around the world to grow over last year as a whole. But there are signs that activity faltered at the tail end of the year and this …
Pressure growing for another rate hike in Turkey The Turkish lira has been among the hardest hit EM currencies this week and, while concerns that the shift in policymaking is unravelling are probably overdone, there’s a growing risk that the CBRT will be …
26th February 2021
Rise in sentiment to be short-lived as third virus waves take hold The EC’s Economic Sentiment Indicators (ESIs) showed an improvement in sentiment across Central and Eastern Europe in February. A broad-based pick up in services sentiment drove the …
25th February 2021
Emerging Europe came through the second virus wave in Q4 in a better state than we had expected, with services sectors holding up and industry booming in Central Europe. But the headwinds have mounted recently. The extension of virus containment measures …
24th February 2021
Labour markets across Central and Eastern Europe (CEE) have held up well since the start of the pandemic and we think this will continue over the next few years, which will support recoveries across the region. One key risk to this view is that government …
Oil and the ruble: a broken friendship? The threat of Western sanctions on Russia is clouding the near-term outlook, but the recent sharp increase in oil prices suggests that fiscal policy may become a bit more supportive this year and that there’s scope …
19th February 2021
Industry resilient, but prolonged restrictions hit retail again Polish activity data for January suggest that the economy broadly stagnated at the start of the year as the extension of virus containment measures hit the retail sector while industry …
Tepid recovery as industry weakens Russian activity data for January show that industry came off the boil at the start of the year while activity in the retail sector picked up strongly. The fall in virus cases and relaxation of some restrictions should …
18th February 2021
The pandemic hasn’t had a major disinflationary effect in Central Europe and the region is in what we think will turn out to be a prolonged period of above-target inflation. But how this affects monetary policy will differ across the region. Interest …
Turkey’s central bank left its policy rate unchanged at 17.00% at today’s MPC meeting and the hawkish tone in the statement, including a commitment to bring inflation back to the 5% target, supports our view that an easing cycle will arrive later and will …
The shift in policymaking at Turkey’s central bank (CBRT) has supported a rally in local financial markets over the past few months and we think this has further to run. We now expect the Turkish lira to end this year at 6.25/$ (previously 7.00/$). A …
17th February 2021
Q4 growth beats expectations but slow vaccine rollout clouds outlook The Q4 GDP data for Central and Eastern Europe revealed that all countries other than Poland grew at the end of 2020. But there was a marked divergence across the region that can be …
16th February 2021
Slow vaccine rollout may delay regional recovery The incredibly slow start to vaccination programmes across the region presents a growing downside risk to our forecast that the region will enjoy a strong economic recovery from Q2 . The latest data suggest …
12th February 2021
Russia’s central bank (CBR) left its key policy rate on hold at 4.25% today and the hawkish message about pro-inflationary risks means that there is no room for further easing. The CBR set the groundwork for a return of interest rates back to a neutral …
Smaller-than-expected contraction in Q4, Q1 should be better GDP figures show that Poland’s economy contracted by 0.7% q/q in Q4, which is likely to have been among the larger falls across Europe. Containment measures are likely to be lifted slowly in a …
Recovery falters at tail end of 2020 Turkey’s industrial production and retail sales figures for December add to the evidence that the economic recovery slowed sharply at the tail end of 2020. This weakness has almost certainly carried over into this year …
Rising inflation takes rate cuts off the table … for now The further rise in Russian inflation to a near two-year high of 5.2% y/y in January will remove any chance of an interest rate cut in the coming months. The central bank will wait for evidence that …
5th February 2021
Sputnik V late-stage trial results offer optimism Russia’s vaccination programme has got off to a slow start and there are a greater number of hurdles holding back rollout than we thought. But the good news this week regarding the high efficacy of the …
Stubbornly high inflation and concerns about a weaker exchange rate mean that Hungary’s central bank (MNB) will keep its powder dry in the next few months. But we think that inflation will ease over the first half of 2021, which should create scope for …
The waves of protests that have taken place across Russia in recent weeks pose the biggest challenge to President Putin in close to a decade and have put a risk premium on the ruble. The government is likely to loosen fiscal policy to boost its support, …
4th February 2021
Inflation rises again, but further tightening unlikely Turkey’s headline inflation rate rose again in January and may edge up a little further in the next few months, but we think that the central bank has probably done enough to convince investors that …
3rd February 2021
Stronger-than-expected performance in Q4 set to continue into 2021 The surprise 0.3% q/q growth in Czech GDP in Q4 was much better than expected as strength in industry more than offset weakness in services. This suggests that, despite being hit hard by a …
2nd February 2021
Modest decline in GDP, economy looks to have held up well in Q4 The full-year decline in Russian GDP of 3.1% in 2020 suggests that the economy expanded slightly in Q4 as the authorities opted for light-touch containment measures in response to the second …
1st February 2021
