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It looks all but inevitable that Ukraine will need to restructure its public debts, but there’s a huge amount of uncertainty about what the restructuring might look like. To shed some light, in this Update we answer five key questions about Ukraine’s …
11th March 2015
Turkey’s current account deficit narrowed substantially in January on the back of a fall in imports. But this wasn’t just due to lower energy imports – non-energy imports fell too. This adds to the evidence that economic growth was extremely sluggish at …
The Turkish government’s attacks on the central bank (CBRT) have become increasingly aggressive over the past month, raising fears about the independence of monetary policy and triggering a sharp sell-off in the lira. In this Watch , we explain how the …
10th March 2015
The 2.2% y/y fall in Turkish industrial production in January was distorted a little by base effects, but even so the data highlight the extent to which the economy is struggling. The consensus view that the Turkish economy will grow by over 3% this year …
9th March 2015
Russian inflation continued to accelerate in February, rising to its fastest pace, at 16.7% y/y, in more than a decade. We think inflation is close to peaking, but the big picture is that it’s likely to remain high over the course of this year. As a …
5th March 2015
The provisional approval of the extension of the Greek bailout has calmed the markets, but the bigger picture is that the road ahead is still long and bumpy. This means that a Greek exit from the euro-zone is still a key risk to the outlook for Emerging …
4th March 2015
The hike in Ukraine’s discount rate by 10.5% to 30% today is a desperate attempt by the National Bank to regain control of the currency, having botched its attempt to tighten capital controls over the past few weeks. The hryvnia has rebounded on the …
3rd March 2015
The rise in Turkish inflation last month, to 7.5% y/y, was probably temporary and we think the headline rate should edge down over the coming months. But the bigger picture is that Turkish price pressures remain strong. Against this backdrop, it will …
The ruble has sold off today but this follows strong gains in recent weeks that made it the best performing EM currency in February. There are several factors that could explain the rebound in the ruble last month but in our view the most convincing …
2nd March 2015
The most striking point from February’s batch of Emerging European manufacturing PMIs was the rebound in the Russian figure, which some have pinned on import substitution. However, our sense is that this probably reflects a more general improvement in …
Concerns over deflation have started to resurface across the emerging world. But the latest deceleration in inflation has been driven by last year’s plunge in oil prices. Accordingly, we continue to think that the risk of a sustained period of deflation …
27th February 2015
February’s Economic Sentiment Indicators (ESIs) brought further evidence that most economies in Central and South Eastern Europe are weathering twin headwinds from Greece and Russia relatively well. Manufacturing has weakened in parts of the region but …
26th February 2015
The latest data have given mixed signals on the performance of Emerging Europe’s economies. The encouraging news is that growth in much of Central Europe (particularly Poland and Hungary) seems to be holding up well. Admittedly, data released this month …
25th February 2015
Turkey’s central bank (CBRT) justified today’s decision to lower interest rates on the grounds that inflation has fallen back, but the reality is that it remains under intense pressure from the government to loosen policy to support growth. This pressure …
24th February 2015
Financial markets in Emerging Europe have brushed off renewed concerns over Greece – indeed, equity markets in most countries have rallied over the course of this month and currencies have generally strengthened too. This has been particularly true of …
23rd February 2015
The release of January’s activity data for Russia was delayed by two hours today but when they finally arrived they brought further evidence that consumers are bearing the brunt of the economy’s problems. Meanwhile, weaker-than-expected data for Poland …
18th February 2015
It has been suggested in some quarters that huge capital outflows from Russia last year were largely due to external debt repayments and thus should not be seen as a major cause for concern. But while there is some truth in this, the bigger picture is …
17th February 2015
The deepening downturn in Russia will depress aggregate growth across Emerging Europe this year but the outlook for most countries will be shaped more by developments in the euro-zone than it will by events in Russia or Ukraine. Exports to the euro-zone …
The larger-than-expected drop in Polish inflation in January, to -1.3% y/y, should seal the deal on an interest rate cut at the next MPC meeting on 4 th March. … Poland Consumer Prices …
13th February 2015
Preliminary Q4 GDP data for Central and Eastern Europe show that regional growth slowed from 3.0% y/y in Q3 to 2.7% y/y in Q4, which is still pretty strong given the problems in Russia and some parts of the euro-zone at the end of last year. A pick-up in …
It’s widely acknowledged by now that the Russian economy is set for a deep recession this year and we think a fall in output of around 5% is likely. This would be similar in scale to the contraction during Russia’s 1998 crisis, but the key point is that …
12th February 2015
The scale of the package of financing for Ukraine announced this morning should be adequate to cover financing needs for a couple of years and will remove an element of uncertainty surrounding the balance of payments and the health of the banking sector. …
Renewed weakness in Germany and the crisis in Russia will weigh on the Czech Republic’s key export sector in the coming quarters. However, the conditions are in place for domestic demand to strengthen, which should drive steady, if unspectacular, growth …
10th February 2015
After a year of stability, Central Europe’s currency markets sprung back to life over the past month as the ECB unveiled a QE programme and the Swiss National Bank (SNB) decided to scrap its exchange rate ceiling. In this Watch we explain why, although …
9th February 2015
The fall in the Turkish lira against the US dollar over the past couple of weeks has raised fresh concerns about the country’s relatively high burden of dollar-denominated debt. But at the same time, the lira has strengthened against the euro and the …
6th February 2015
The fact that the ruble has strengthened since Russia’s surprise cut in interest rates last Friday is more a reflection of the subsequent rebound in global oil prices than it is an endorsement by markets of the central bank’s action. Movements in oil …
Strong industrial production figures from both the Czech Republic and Hungary in December provide further evidence that Central Europe is weathering headwinds from the euro-zone relatively well. On the basis of these data, we suspect that preliminary Q4 …
Inflation in Russia jumped to a five-year high of 15.0% y/y last month, as the effects of the sharp fall in the ruble towards the end of last year led to a surge in import prices. The big rise in inflation may now have happened, but we expect it to rise …
5th February 2015
Having left its policy interest rate unchanged at 2.0% earlier today, the Polish MPC pretty much confirmed at the post-meeting press conference that a rate cut is on the way in March. For now, we expect 25bp rate cuts at the next two MPC meetings, which …
4th February 2015
The smaller-than-expected fall in Turkish inflation last month, to 7.2% y/y, means the central bank won’t hold an extraordinary meeting tomorrow to lower interest rates, but this is only likely to result in further pressure from the government to ease …
3rd February 2015
Preliminary annual 2014 Russian GDP data, which showed that the economy grew by 0.6% over the year as a whole, are consistent with a small year-on-year fall in GDP in the final quarter of last year. And, crucially, this is yet to reflect the full impact …
30th January 2015
Today’s surprise decision by the Central Bank of Russia (CBR) to cut its one-week repo rate by 200bp, to 15.0%, reflects political pressures rather than economic reality. The decision was premised on the need to provide more support to the economy, but in …
News that Ukraine’s government plans to hold “discussions” with bondholders has been widely interpreted as a precursor to some form of default, and dollar bond yields have jumped accordingly in recent weeks. It’s hardly surprising that Ukraine has arrived …
29th January 2015
January’s Economic Sentiment Indicators dipped across most of Central and South Eastern Europe, but they were still strong and suggest that the region has continued to weather headwinds from Western Europe and Russia relatively well. The breakdown …
We’re often asked about the extent to which Russia’s sizeable foreign exchange reserves provide a buffer against lower oil prices and capital flight and for how long they might last. There are lots of moving parts, but the short point is at the current …
The key point that stands out in December’s activity data for Russia is the sharp jump in retail sales growth. However, this reflects panic buying as the ruble collapsed at the end of last year. Hence, this is only likely to be temporary and will almost …
28th January 2015
The communiqué accompanying the Hungarian MPC’s decision to leave interest rates unchanged at 2.1% earlier today once again signalled that current monetary conditions are likely to stay in place for an “extended” period. Nonetheless, the MPC did …
27th January 2015
Inflation has diverged significantly across the emerging world over the past few months. While some economies have slipped into deflation, in a number of countries consumer prices are rising at a double-digit pace. We expect this trend to continue into …
The preliminary estimate of Polish annual 2014 GDP, which showed an expansion of 3.3% over the year as a whole, is consistent with a modest slowdown in economic growth from 3.3% y/y in Q3 to 3.0% y/y in Q4. This appears to have been driven largely by …
The collapse in the ruble appears to have wiped out a large chunk of the Russian banking sector’s capital and we think the government will need to expand its current recapitalisation plans significantly. At the same time, problems in the banking sector …
26th January 2015
The ECB’s larger-than-expected quantitative easing programme has led to a rally in Central European equities and currencies, although this hasn’t been substantial. Meanwhile, the yields on Ukrainian dollar bonds have surged further following hints from …
23rd January 2015
Today’s meeting between President Putin and government ministers to discuss anti-crisis measures and budget amendments suggests that the authorities are finally starting to acknowledge the new economic realities. Fiscal tightening looks almost certain. …
21st January 2015
The rebound in Polish industrial production growth, to 8.4% y/y, last month was flattered by working day effects, but even so, it provides an encouraging early sign that the economy is weathering headwinds from both the euro-zone and Russia. At the …
Today’s 50bp cut in the Turkish one-week repo rate, to 7.75%, doesn’t necessarily mark an easing of monetary conditions. It’s much more important to look at interbank interest rates, and these have hovered near the central bank’s overnight lending rate, …
20th January 2015
The ECB looks almost certain to launch a programme of quantitative easing this week but, unless it surprises in the scale and breadth of its asset purchases, the impact on the financial markets in Central and Eastern Europe is likely to be limited. That …
19th January 2015
December’s Polish CPI data, which confirmed that the economy fell deeper into deflation, add to the evidence supporting a loosening of monetary policy over the coming months. However, the sharp rise in the Swiss franc earlier today, and concerns about the …
15th January 2015
Today’s decision by the National Bank of Poland to keep its policy interest rate unchanged at 2.00% was clearly on a knife edge and, with the economy set to remain in deflation for much of this year, we think the direction of the next move in rates will …
14th January 2015
The sharp drop in oil prices will push much of Central and South Eastern Europe into deflation over thecoming months and we have revised down our inflation forecasts accordingly. However, for mostcountries, the risk of deflation becoming entrenched is low …
The immediate outlook for Polish interest rates has been muddied by the increasingly acrimonious divisions that have opened up within the MPC. On balance it looks more likely that the Council will opt to leave the policy rate unchanged at 2.0%, rather …
13th January 2015
