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Large interest rate cuts and dovish comments from central banks in Russia and Turkey this month drove rallies in both countries’ local currency bond markets. The yields on sovereign 10-year local currency debt have dropped by 60bp since the start of this …
29th October 2019
Rate cuts & dovish noises The raft of interest rate cuts and dovish noises out of central banks this week suggest that monetary policy is likely to remain loose or be loosened further across most of the region over the coming quarters. That said, we think …
25th October 2019
The Russian central bank’s decision to opt for a 50bp rate cut today (to 6.50%) and the dovish tone of the accompanying statement support our view that the easing cycle has further to run. As things stand, we expect the one-week repo rate to be lowered to …
September’s plunge in inflation alongside the removal of US sanctions gave the Turkish central bank the green light to deliver another larger-than-expected interest rate cut today and the easing cycle has a little further to run in the coming months. But …
24th October 2019
The weakness in Russian retail sales looks close to bottoming out, but any turnaround will be modest. This is one reason to think that the overall recovery in GDP growth will be weak and that the central bank’s easing cycle is likely to be deeper than …
23rd October 2019
Slowdown continues in Q3 The batch of Polish activity data for September suggest that GDP growth slowed from 4.5% y/y in Q2 to 3.8-4.0% y/y in Q3. There was a marked improvement in the industrial sector last month . Industrial production rose by 5.6% y/y …
21st October 2019
The five-day ceasefire in Syria agreed by Turkey and the US yesterday has prompted a rally in Turkish markets, but the calm could prove temporary and the charges brought against Halkbank this week underline the vulnerability of the banking sector. In …
18th October 2019
Economy struggling for momentum The soft Russian activity data for September suggest that GDP growth over Q3 as a whole was in line with Q2’s sluggish outturn of 0.9% y/y. Coming alongside low inflation, another 25bp interest rate cut at next week’s …
17th October 2019
Overview – Looser policy will support stronger economic growth in Russia, as well as in Turkey (so long as US sanctions don’t get much worse), in the coming quarters. In contrast, the economies of Central and Eastern Europe are likely to slow further as …
16th October 2019
Turkey’s financial markets have taken the US sanctions imposed yesterday in their stride, but the threat of harsher measures in the context of the country’s weak external position could result in a fresh sell-off in the coming days. This would act as a …
15th October 2019
The growing threat of sanctions on Turkey in relation to its recent incursion into Syria have already put significant downward pressure on Turkish financial assets and fragilities in the banking sector could precipitate even more severe problems. …
14th October 2019
The Polish Law and Justice Party’s second term in power is likely to be much less impressive than its first, marked by slower economic growth, higher inflation and a poor financial market performance. Law and Justice went into Sunday’s election with a …
Industrial weakness likely to be prove fleeting The larger-than-expected fall in Turkish industrial production in August is likely to prove a bump in the road, with more timely survey evidence pointing to a recovery over the coming months. That said, the …
Turkish markets to suffer as risk of sanctions grows The threat of sanctions against Turkey is growing and, given the context of the country’s large external debts, the fallout for local financial markets could prove to be more severe than that the …
11th October 2019
The prospect of Turkish military action in Syria has again raised the spectre of US sanctions. While these would probably be on the soft end of the spectrum, Turkey’s poor external position means that the mere threat of more action would weigh on the lira …
8th October 2019
Easing cycle has further to run The fall in Russian inflation to the central bank’s target of 4.0% y/y in September is likely to be followed by a further decline in the headline rate over the coming months. We currently expect an additional 50bp of cuts …
4th October 2019
Poland: Swiss-franc loans put banks in the spotlight The ruling by the European Court of Justice (ECJ) that Polish households can potentially convert their Swiss franc mortgages into zloty could result in bank losses but should not have a major macro …
Inflation returns to single digits, more rate cuts lie in store Last month’s steep fall in Turkish inflation, taking it back into single digits, was flattered by base effects and the headline rate will rise again later this year. Even so, these figures …
3rd October 2019
Turkish recovery gathers momentum, CEE remains weak Turkey’s PMI for September provides further evidence that the economy recovered strongly in the third quarter and with policy set to be loosened further, the recovery has some legs. Meanwhile, our …
1st October 2019
Three central banks surprised the markets this week with more hawkish-than-expected communications. The Turkish central bank is likely to cut rates further, but above-target inflation will prevent monetary easing in Hungary and the Czech Republic. …
27th September 2019
Growth holding steady in Q3 The European Commission’s batch of Economic Sentiment Indicators (ESIs) for September suggest that growth held steady at 4.0% y/y in Q3. But with the industrial surveys deeply negative and signs that services sentiment is …
The economies of Central and Eastern Europe (CEE) shrugged off ongoing troubles in the euro-zone economy for most of 2019 but the latest data offer evidence that this now taking a bigger toll. Industrial production growth in Poland and the Czech Republic …
26th September 2019
The deterioration in the external environment and willingness of the Hungarian MPC to look through above-target inflation means that monetary conditions are unlikely to change over the next twelve months. That said, we think that the central bank will …
20th September 2019
Turkey’s banks back in the spotlight The Turkish banking regulator’s decision to force banks to reclassify TRY46bn of loans as non-performing will raise concerns about the health of banks’ loans books, but the major risks in the banking sector stem from …
Slowdown in growth starting to look more pronounced The relatively weak batch of Polish activity data for August suggest that euro-zone weakness is taking an increasing toll on the Polish economy. Our GDP Tracker points to growth slowing from 4.4% y/y in …
Economy struggling to gain momentum The batch of Russian activity data for August suggest that the economy maintained a steady, if not inspiring, pace of growth in Q3. With growth unlikely to pick up markedly over the rest of the year, this provides …
18th September 2019
Turkey’s central bank looks set to cut interest rates further over the coming months, but past experience suggests that the easing cycle will be short and that renewed lira weakness will eventually force policymakers to reverse course. We expect rate …
17th September 2019
Poland minimum wage set to rise sharply Sharp hikes in the minimum wage proposed by Poland’s ruling Law and Justice party (PiS) ahead of October’s elections have raised concern about the inflation outlook, but we think that some of the worst fears are …
13th September 2019
Industry rebounds, current account continues to improve The chunky 4.3% m/m rise in Turkish industrial production in July confirms that June’s dip in output was a blip. Meanwhile, the current account position has continued to improve. But efforts to …
The Turkish central bank delivered another larger-than-expected interest rate cut today and we now expect the one-week repo rate to reach a trough at 12.50% (previously 16.00%). But if we’re right in expecting inflation to start rising again and the lira …
12th September 2019
The more dovish-than-expected press conference following today’s MPC meeting confirmed that the Polish central bank is placing more weight on concerns about the weak external environment than domestic inflationary pressures. While we think that inflation …
11th September 2019
We doubt that Central and Eastern European (CEE) currencies will be able to regain any of the ground they have lost against the euro over the next year or so. The Hungarian forint is likely to be the worst performing currency in the region, while the …
9th September 2019
Russian central bank governor, Elvira Nabiullina, used the post-meeting press conference to hint at a possible further rate cut by year-end, supporting our view that the easing cycle has further to run. For our part, we think slow growth and weak …
6th September 2019
Too quick to become optimistic on Ukraine? Ukraine’s President Volodymr Zelensky has hit the ground running in his bid to push key reforms through the Rada. Markets have taken these developments, as well as the strong Q2 GDP figures, positively but we …
Falling inflation to keep monetary easing cycle going The fall in Russian inflation to a weaker-than-expected 4.3% y/y last month strengthens our view that the central bank will lower its policy rate by 25bp when it meets tomorrow. Soft underlying price …
5th September 2019
Inflation drop means another aggressive rate cut next week The steeper-than-expected fall in Turkish inflation in August leaves the door wide open for the central bank to cut interest rates aggressively again when the MPC meets next week. We have …
3rd September 2019
Surveys still consistent with industrial slowdown in Central Europe The batch of August PMIs released for Central Europe were a reassuring improvement following the plunge in July but remain consistent with a further slowdown in industrial output over the …
2nd September 2019
Economy rebounding strongly from recession The stronger-than-expected 1.2% q/q rise in Turkish GDP in Q2 has prompted us to revise up our 2019 GDP forecast to -0.8% (previously -1.8%). But there’s a growing risk that policymakers’ efforts to turbo-charge …
No-deal Brexit risks come back into play The increasing likelihood of a no-deal Brexit is coming at a time when Central Europe is starting to be affected by weakness in the euro-zone and a more general slowdown in the global economy. As a result, the …
30th August 2019
Growth remained solid in Q3 The European Commission’s batch of Economic Sentiment Indicators (ESIs) for August suggest that regional growth remained strong in Q3 at a little under 4% y/y. The ESIs rose in six of the ten Central and Eastern European (CEE) …
29th August 2019
Central Europe is one of the few parts of the world where central banks haven’t eased monetary policy recently. Indeed, we think that the focus is likely to remain on tightening, particularly in Poland and Hungary. Inflation is likely to remain above …
28th August 2019
Turkish central bank takes aim at bank lending The fall in the Turkish lira this week amid concerns about the central bank’s shift towards monetary easing strengthens our view that, while interest rates will be cut aggressively in the near term, the MPC …
23rd August 2019
Growth remained solid at start of Q3 The batch of Polish activity data for July suggest that strong domestic demand is offsetting weakness in export-led sectors. Our GDP Tracker suggests that growth edged just below 4% y/y at the start of Q3. July’s …
22nd August 2019
The recovery in Hungarian private sector credit has been an important driver of GDP growth in recent years, but we think that the credit boom doesn’t have much further to run . One of the most impressive aspects of Hungary’s recent expansion – GDP grew by …
21st August 2019
Economy hits a bump in the road July’s Russia activity data suggest that, after recovering slightly in Q2, the economy may have lost a bit of momentum at the start of Q3. This, combined with easing inflationary pressures, will leave the door open for more …
19th August 2019
Russia: slow and bumpy recovery ahead Russia’s economy staged a recovery in Q2, but the early evidence suggests that the economy failed to gather momentum at the start of Q3. The preliminary Q2 GDP figure released on Monday showed that the economy …
16th August 2019
Industry collapses, although surveys point to better Q3 The 3.7% m/m fall in Turkish industrial production in June adds to the evidence that GDP growth in Q2 was much weaker than in Q1. Leading indicators suggest that the scale of the fall in output was …
The rise in Polish inflation to a seven-year high in July and likelihood that it will stay above target over the next 18 months will keep the focus of the MPC on tightening. But we don’t think this will tip the balance and are sticking with our view that …
14th August 2019
Growth likely to slow from here The strength of the Q2 GDP data for Central and Eastern Europe suggests that domestic demand continued to offset the impact of euro-zone weakness. However, there are signs that soft external demand is set to take a bigger …
Early signs of a recovery The slightly better-than-expected 0.9% y/y rise in Russian GDP in Q2, up from 0.5% y/y in Q1, is likely to be followed by a further improvement in the second half of the year. But growth is still likely to be weaker than most …
12th August 2019
