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Russia’s central bank (CBR) didn’t disappoint at today’s meeting, cutting the key policy rate by 100bp to a new post-Soviet low of 4.50%. With disinflationary forces proving stronger than expected and financial markets stabilising, the accompanying …
19th June 2020
The effects of lockdowns have been felt unevenly across the region, with Romania and Turkey suffering among the largest falls in both retail sales and industrial production, while activity in Latvia and Ukraine has held up better. High-frequency data …
16th June 2020
Scarring effects will be uneven across the region All economies will suffer a permanent loss of output as a result of the pandemic, but recent labour market developments offer early signs that activity in Central Europe may recover more quickly than in …
12th June 2020
Activity falls off a cliff in April The plunge in Turkish industrial production and retail sales in April suggests that the economy suffered a almighty hit to GDP in Q2 – we expect the economy to suffer one of the largest contractions across major EMs of …
The early signs are that activity is recovering quickly in Poland as lockdown measures are lifted. Provided that the virus is contained, we think that Poland will experience the smallest contraction in GDP across Europe this year. Large policy stimulus …
9th June 2020
Easing inflation strengthens the case for further rate cuts Russian inflation eased to 3.0% y/y in May and the underlying picture is that inflation has been much weaker than many expected just a few months ago. Price pressures are likely to remain muted …
5th June 2020
Russia: a long-overdue fiscal package arrives Russia’s government unveiled a stimulus plan this week to speed up the economic recovery. The details are limited and the government is only belatedly getting its act together, but the response suggests that …
Turkey’s public finances remain in good shape compared with most other EMs but they have deteriorated in recent years and are no longer the pillar of strength that they once were. The debt-to-GDP ratio will continue to rise and, as investors demand a …
Higher inflation unlikely to preclude another rate cut The rise in Turkish inflation in May, to 11.4% y/y, suggests that the effects of the sharp fall in the lira in the early part of the month more than offset the impact of weaker domestic demand on …
3rd June 2020
Manufacturing sectors slowly recovering The manufacturing PMIs repeat the message from the ESIs released last week that activity in the region rebounded in May but remained at subdued levels. As lockdowns continue to be lifted and external demand …
1st June 2020
Nagy departure won’t affect MNB’s dovishness The resignation of one of the Hungarian central bank’s (MNB) key personnel may lead to a simplification of the monetary policy framework but is unlikely to alter the institution’s dovish bias. After 18 years …
29th May 2020
Growth in Q1 to be followed by collapse in Q2 Turkey’s economy managed to grow in Q1 as a strong January and February more than offset a dire March. But the latest activity figures are ominous and point to a collapse in activity in Q2. The 0.6% q/q rise …
Recovery slow going, for now May’s Economic Sentiment indicators suggest that the easing of lockdowns only provided a limited boost to the Central and Eastern Europe economies. The surveys are still consistent with a fall in GDP of around 6% y/y in Q2. …
28th May 2020
The coronavirus crisis has dealt a heavy blow to the economies of Emerging Europe over the past few months but the worst of the downturn now appears to have passed. As infection curves have flattened, most countries have eased lockdowns in recent weeks …
27th May 2020
Financial support for Turkey a sticking plaster Financing provided by Qatar and Japan has reduced the immediate threat of another currency crisis in Turkey, but ongoing efforts to defend the lira will ultimately lead to a sharp adjustment. Earlier this …
22nd May 2020
Output plummets at the start of Q2 The collapse in the Polish industrial production and retail sales data for April were partially offset by higher public spending on large infrastructure projects in the construction sector . This provides some …
Turkey’s central bank stepped up its monetary support for the economy with a 50bp cut in interest rates today and recent announcements of financial support from Qatar and Japan probably tips the balance in favour of further easing at June’s meeting. A …
21st May 2020
A deep dive into Russia’s banking system provides comfort that, while there are pockets of vulnerability beneath the surface, the economy is unlikely to experience a financial crisis like it did in 2008/09 and 2014/15. Even so, the post-coronavirus world …
20th May 2020
Economy sputters in Q1, collapse coming in Q2 The slowdown in Russian GDP growth to 1.6% y/y in Q1 almost certainly failed to capture the extent of virus containment measures as the government did not implement lockdown measures until late-March. The …
19th May 2020
Turkey’s balance of payments problems Strains in Turkey’s balance of payments persist and recent developments have done little to alter our view that the risk of another currency crisis is rising. Data this week showed that the current account posted a …
15th May 2020
Coronavirus devastates the region The batch of Q1 GDP data for Central & Eastern Europe shows that the region’s economies were in freefall at the end of March after lockdown measures were imposed. A strong start to the year meant that the data in Poland …
Economy in deep downturn The collapse in Turkish industrial production and retail sales in March add to the evidence that, even though the government refrained from imposing draconian lockdown measures, the economy probably contracted over Q1. More timely …
14th May 2020
The huge hit to Turkey’s balance of payments position from the coronavirus crisis and the evaporation of investors’ confidence in policymakers makes the risk of a currency crisis like that seen in 2018 increasingly likely. Worryingly, the banking system …
11th May 2020
The Czech central bank delivered a larger-than-expected interest rate cut at today’s MPC meeting but also disappointed those that had expected some unconventional measures to be announced to support the economy. Policymakers’ cautiousness and conservatism …
7th May 2020
President Putin faces one of his sternest tests The failure of the Russian authorities to contain the virus outbreak and the lack of urgency with which policymakers have stepped up fiscal support has made us increasingly concerned about a prolonged …
A worrying divergence is emerging in the policy response across the region. Policymakers in Central Europe imposed lockdown measures early which have succeeded in containing the outbreak. And the scale of economic policy support will bolster recoveries as …
5th May 2020
Activity grinding to a halt April’s manufacturing PMIs for Emerging Europe fell off a cliff and point to industrial production declining at a record pace in Q2. With lockdown measures being lifted in the Czech Republic, activity is likely to bounce back …
4th May 2020
Fall in inflation may tempt CBRT to cut rates, but lira risks abound The fall in Turkish inflation in April, coupled with growing evidence of a sharp economic downturn, may tempt the central bank to cut interest rates further. But this would severely test …
Turkey’s lira defence far from over Figures released this week highlighted the hit to Turkey’s balance of payments from steps to contain the coronavirus and, while the lira broke through 7/$ today, efforts to defend the currency are not over yet. Trade …
1st May 2020
There are encouraging signs that the authorities in Central Europe have brought the virus under control and policymakers are slowly starting to ease lockdown measures, which will support a recovery in activity. It's a different story in Russia where the …
29th April 2020
Activity falling off a cliff The collapse in April’s Economic Sentiment Indicators to levels not recorded before in Central and Eastern Europe point to GDP falling by around 6.0% y/y at the start of Q2, more than twice as large as the worst-affected …
Hungary’s central bank didn’t disappoint at today’s MPC meeting in announcing its bond purchase programme and it’s clear that policymakers have shifted their attention from keeping short-term rates low to pushing down long-term rates. But unlike bond …
28th April 2020
The coronavirus crisis is likely to cause unemployment rates to jump by 5%-points or so across most of the region in Q2 and we think the labour market fallout could be much worse in Turkey. However, most of the rise in unemployment should prove temporary …
Economy shrugs off coronavirus outbreak in Q1 The relatively strong batch of Russian activity data for March suggest that GDP growth probably picked up a touch to 2.5% y/y in Q1. However, this largely reflects the fact that Russia was much slower to …
27th April 2020
Turkey turns to import compression to protect lira Turkish policymakers’ efforts to prevent the lira from slipping through 7/$ will prove futile and, with the chances of an IMF deal slim, the government has turned to import compression to counter balance …
24th April 2020
The Russian central bank abandoned its cautious approach to the coronavirus outbreak by cutting its key policy rate by 50bp, to 5.50%, today and the accompanying communications gave the clearest possible indication that further easing is on the cards. …
Overview – Emerging Europe will experience its largest decline in real GDP this year since the collapse of the Soviet Union. The aggressive policy response across Central Europe and the ability of the authorities there to bring the virus under control …
23rd April 2020
The plunge in oil prices won’t push Russia’s economy into a financial crisis, as it did in 2008/09 and 2015. But the government is likely to run its largest budget deficit since the late 1990s, which will limit the size of the fiscal package to support …
22nd April 2020
The Turkish central bank responded to signs of a clear downturn in the economy by cutting interest rates by a further 100bp today but, with downward pressure on the lira continuing to mount, we think that the scope for further monetary easing is limited. …
Economy heading for a collapse in output The collapse in the Polish activity data for March came on the back of two strong months and suggests that the economy probably avoided a contraction in Q1 and grew at around 2.0% y/y. But the slump in March is a …
Pressure builds on Turkish lira The Turkish lira was resilient in March’s market sell-off but it’s been the ugly duckling of EM currencies this month as fears grow over the country’s coronavirus outbreak and poor external position. Whereas most EM …
17th April 2020
The damage to Turkey’s economy from the coronavirus outbreak has led to suggestions that the government may turn to the IMF for a financing package, but the political backdrop means that this would almost certainly be a last resort. Policymakers would …
15th April 2020
Coronavirus developments: the good and the bad Governments in parts of the region have had some success in slowing the spread of the virus, but there is clear evidence that Russia and Turkey are struggling to contain outbreaks. In Turkey, cases topped …
9th April 2020
Economies across Emerging Europe are heading for a sharp contraction in output, but one crumb of comfort is that vulnerabilities are drastically lower than they were in the run-up to the Global Financial Crisis. Large balance sheets strains are unlikely …
Inflation set to rise gradually, but easing is on the cards The rise in Russian inflation to 2.5% y/y in March probably marks the start of a gradual pick-up over the next few months as the effects of the weaker ruble feed through to consumer prices. But …
6th April 2020
Hungary’s Orbán granted unlimited power The Hungarian parliament’s decision to allow Prime Minister Viktor Orbán to rule by decree indefinitely has caused uproar among EU officials. Governments globally have assumed emergency powers to fight the …
3rd April 2020
Drop in inflation opens door for more rate cuts The drop in Turkish inflation in March, coupled with the sharp downturn in the economy, means that the central bank is likely to follow up last month’s emergency 100bp interest rate cut with further easing. …
Turkey’s banks muddled through the currency crisis two years ago, but they are now in a weaker position to confront the economic and financial market fallout from the coronavirus outbreak. At the very least, the recent sharp tightening of external …
2nd April 2020
The slump in output has only just begun The slump in March’s manufacturing PMIs across Central Europe to levels not seen since the financial crisis are a sign of things to come and the figures for April are likely to be a lot worse. Russia’s PMI held up …
1st April 2020
The coronavirus has spread across Emerging Europe faster than any other region in the emerging world and governments have implemented increasingly restrictive measures to contain its spread. These measures, combined with the effects of social distancing …
31st March 2020
