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Victories for President Erdogan and his AKP-led alliance in Turkey’s elections have been welcomed by financial markets, but history suggests that this rally will be short-lived, particularly if Mr. Erdogan uses the new strengthened presidential powers to …
25th June 2018
The more hawkish communications from Hungary’s MPC this week support our long-held view that ultra-loose monetary policy will be reined in this year. The hawkish shift caused market expectations for interest rates to rise sharply, although we still think …
22nd June 2018
This weekend’s elections in Turkey, which will mark a shift to a presidential political system, have put markets on edge amid fears of a further tilt towards unorthodox policy under a (strengthened) President Erdogan. The vote is unlikely to have much …
21st June 2018
The batch of Polish activity data for May suggests that the economy is set to slow from 5.2% y/y in Q1 to around 4% y/y in Q2. … Poland Activity Data …
The strength of May’s Russian activity data, coupled with upwards revisions to the industrial output figures, suggests that GDP growth picked up to more than 2% y/y, compared with the latest estimate of 1.3% y/y for Q1. We will let the revised industrial …
20th June 2018
The post-meeting communications following today’s Hungarian MPC meeting offered some strong hints that the recent era of ultra-loose monetary policy is in its final days. We think that unconventional easing measures will be reined in from September …
19th June 2018
We have warned about the risk of a sharp slowdown in Turkey for some time and this now seems to be materialising. The economy is likely to experience a quarter or two of negative growth this year. A strong Q1 means that GDP growth will be around 3.5% over …
18th June 2018
Govenor Nabiullina’s hawkish comments at today’s post-meeting press conference are likely to reinforce views in the markets that the central bank’s easing cycle is at an end. For our part, we think the impact of the government’s recently-announced VAT …
15th June 2018
The announcement that Russia’s Cabinet plans to raise the retirement age is a step in the right direction. While there are question marks about whether it will be implemented in full, it could stop the working-age population from falling and boost …
14th June 2018
Romania’s economy is overheating and, unless monetary policy is tightened markedly in the months ahead, a nastier adjustment and more abrupt slowdown in GDP growth lies in wait.Romania’s economy is overheating and, unless monetary policy is tightened …
12th June 2018
The Turkish economy grew by a faster-than-expected 7.4% y/y in Q1 but, crucially, this predates the recent financial market turmoil. An abrupt slowdown is on the cards over the coming quarters. … Turkey GDP (Q1 2018) & Czech CPI …
11th June 2018
After a strong Q1, Polish fixed investment growth will stay robust over the duration of 2018. However, this won’t be enough to prevent headline GDP growth from slowing. … Polish investment growth will remain …
8th June 2018
The Turkish central bank’s decision to hike its one-week repo rate by 125bp, to 17.75%, is a tentative sign that it is shifting its focus away from simply shoring up the lira and towards tackling high and rising inflation. The key now is whether more …
7th June 2018
The imposition of more stringent US financial sanctions in April seems to have resulted in a long-lasting premium in Russia’s currency and bond market. But there has been little convincing evidence of an impact on the real economy. And if negative …
5th June 2018
Russian inflation was unchanged at 2.4% y/y in May, providing further evidence that the ruble’s fall in April has not led to a build-up in price pressures. This should give the central bank confidence to resume its easing cycle later this month. … Russia …
GDP breakdowns for the economies of Central Europe showed that, while domestic demand remained strong in Q1, net trade dragged on growth across the region. With capacity constraints starting to bite, this drag will continue over the course of 2018/19. … …
Despite the sharp rise in Turkish inflation in May, to 12.1% y/y, the rally in lira over the past week or so means that we think that the central bank will decide to stand pat at its MPC meeting on 7th June. … Turkey CPI …
4th June 2018
Last month’s manufacturing PMIs fell in most of Emerging Europe, reinforcing our view that regional growth has peaked. The PMI plunged to a nine-year low in Turkey, which is the first sign that the sharp tightening of financial conditions in recent weeks …
1st June 2018
Last week’s emergency rate hike by Turkey’s central bank has caused a rebound in the lira and past experience suggests that the rally may have a bit further to run over the coming weeks. But there are a number of potential flashpoints on the horizon and …
31st May 2018
Recent developments in Italy do not pose an immediate threat to economies in Emerging Europe but a significant escalation in the crisis would cause problems for countries in the region, particularly Croatia, Slovakia and Romania. … How could Italy’s …
At a regional level, May’s Economic Sentiment Indicators for Central and Eastern Europe (CEE) were a bit stronger than in April, but the latest readings still support our view that GDP growth in CEE has now peaked. Meanwhile, Polish inflation remained …
30th May 2018
The decision by Turkey’s central bank to begin using the one-week repo rate as its key policy tool looks less like an effort to simplify its monetary policy framework (as has been suggested by some), and more like a way to create room to raise market …
29th May 2018
The plunge in the Turkish lira and dislocation in local markets in recent weeks has resulted in a severe tightening of broader financial conditions. Past experience suggests that a tightening on the scale seen so far is likely to be followed by a sharp …
25th May 2018
Turkey has been in the grips of a currency crisis which forced the central bank to hike interest rates by 300bp on 23rd May, but that only provided brief respite for the lira. For now, there are signs that President Erdogan has taken the hint. He kicked …
24th May 2018
The plunge in the Turkish lira over the past few days has been steeper than that which triggered abrupt monetary tightening in 2014 and 2017. We expect the MPC to hold an interim meeting over the coming days to raise interest rates by at least 200bp. If …
23rd May 2018
The latest Russian activity figures suggest that GDP growth picked up to about 1.5% y/y at the start of Q2. These data also provide early evidence that the tightening of US sanctions and the fall in the ruble in early April have had little impact on the …
22nd May 2018
Rapid wage growth in Central Europe has yet to feed into a meaningful pick-up in inflation. Part of the softness of Central European inflation reflects weak price pressures in the euro-zone. But it has also been the case that firms have absorbed higher …
17th May 2018
Russian GDP expanded by a weaker-than-expected 1.3% y/y in Q1, but the data do at least confirm that the economy is recovering from its slowdown in late 2017. And we think growth will strengthen by more than most expect over the rest of this year. … …
16th May 2018
Market sentiment towards Turkey is quickly evaporating as fears mount over the build-up of external vulnerabilities, high and rising inflation, and growing concerns that the central bank’s independence is being eroded. Paradoxically, political pressure …
The Turkish lira’s decline in recent weeks will keep headline inflation elevated, prompting the central bank to shrug off political pressure and hike interest rates in the coming months. The big risk is that the lira’s decline sets off a vicious cycle of …
15th May 2018
GDP data for Central and Eastern Europe (CEE) showed that growth in the region as a whole expanded by 4.5% y/y in Q1. While this is still strong by recent standards, it’s weaker than a recent peak of 5.6% y/y in Q3 and we think that growth across CEE will …
The deterioration in Turkey’s current account position since mid-2017 has been driven by a surge in gold imports, a rising energy import bill and strong domestic demand feeding through into imports of other goods. But with capital inflows now slowing, the …
14th May 2018
The batch of preliminary Q1 GDP figures for Emerging Europe due next week should confirm that, while regional growth peaked last year, it remained relatively strong at the start of 2018. The pace of expansion accelerated in Russia, and growth in Turkey …
11th May 2018
The latest fall in the Turkish lira doesn’t appear to have resulted in widespread balance sheet strains, but there are significant vulnerabilities in the corporate and banking sectors. This adds to the reasons to expect the central bank to hike interest …
8th May 2018
The weaker-than-expected Russian inflation figure for April, of 2.4% y/y, supports our view that the central bank’s decision to hold interest rates last week was just a pause in the easing cycle. We continue to expect more interest rate cuts this year …
4th May 2018
The past few months have brought early signs that growth has peaked in parts of Emerging Europe, and we expect the pace of expansion to ease in most countries over the course of this year and 2019. In Central Europe, the turn in the cycle should be …
3rd May 2018
Today’s stronger-than-expected Turkish inflation data will add to fears that the economy is overheating and strengthens the case for the MPC to hike interest rates further over the coming months. … Turkey CPI …
The EU’s draft budget for 2021-27 released today only provided headline details but, as a rough estimate, we think that annual structural fund inflows for each of the Central and Eastern European (CEE) economies could be 1% of GDP lower than at present. … …
2nd May 2018
Last month’s manufacturing PMIs fell in most of Emerging Europe, supporting our view that regional growth has now peaked. The PMI dropped particularly sharply in Turkey, suggesting that a fairly marked slowdown in growth is on the horizon. … Manufacturing …
The sell-off in the ruble caused the Russian central bank (CBR) to pause its easing cycle today, but the dovish tone of the accompanying statement supports our view that rates are likely to be lowered further over the rest of 2018. The market’s response …
27th April 2018
Our weighted-average of the Economic Sentiment Indicators for Central and Eastern Europe (CEE) dipped a little this month, but is still consistent with strong GDP growth. The fall in the ESIs was driven by the industry component, suggesting that the …
The latest data suggest that, while GDP growth in Central Europe has now peaked, it remained strong at 4.5-5.0% y/y in Q1. That came in spite of a raft of softer activity and survey figures from key euro-zone trading partners (notably Germany). …
25th April 2018
The move by the Turkish MPC to hike its late liquidity rate by 75bp today only brought temporary relief for the lira and suggests that markets are unconvinced about policymakers’ willingness to shore up the currency. Taking that together with a widening …
Hungary’s ruling Fidesz party has gained a reputation for fiscal prudence in the past few years, but the latest data suggest that stimulus in the run-up to April’s parliamentary election has caused the country’s fiscal health to worsen markedly. On the …
23rd April 2018
The batch of Polish activity data for March suggests that the economy grew by 5% y/y in Q1 – in line with Q4’s outturn as a pick-up in retail spending growth offset a slowdown in industry. … Poland Activity Data …
The latest moves in the Russian and Turkish currencies mean interest rate decisions due in both countries next week are on a knife edge. On balance, we think the Turkish central bank will raise its late liquidity rate by 100bp; otherwise, the lira is …
20th April 2018
Russian activity figures for March were generally quite soft, but it still looks like overall GDP growth picked up to about 2.0% y/y in Q1 from 0.9% y/y in Q4. The turmoil in local financial markets at the start of this month has cast a cloud over the …
18th April 2018
Governor Glapinski’s extremely dovish post-meeting press conference, coupled with the recent weak inflation data, has prompted us to take out the interest rate hikes from our forecast for this year. Even so, with price pressures likely to build over the …
11th April 2018
Mounting concerns about Turkey’s current account deficit as well as debt problems in the corporate sector are likely to keep the lira under pressure over the coming weeks. As a result, we now expect the central bank to respond by tightening monetary …
The sharp fall in the Russian ruble today has raised the risk that the central bank pauses its easing cycle when it meets later this month. The situation is in a state of flux and the outlook for interest rates will depend in part on whether US sanctions …
10th April 2018
