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February’s PMIs show that manufacturing in Emerging Europe continued to strengthen. Poland and the Czech Republic are leading the way and, encouragingly, the PMI components suggest that domestic demand is now strengthening alongside external demand. …
3rd March 2014
Events in Ukraine have been one factor behind the fall in the Russian ruble, but domestic problems have played a role too. The central bank (CBR) has already voiced its concern that exchange rate weakness could fuel inflation, leading some to argue that …
28th February 2014
The breakdown of Polish Q4 GDP data confirmed that the recovery at the end of last year was driven by improving household consumption. Looking ahead, we expect growth to strengthen over the coming quarters. Some have raised concerns that spillovers from …
It’s difficult to gauge the immediate impact of recent developments in Ukraine on the economy, but historical evidence from similar instances of unrest and political transition suggests that GDP growth rates can weaken by between 4%-pts and 8%-pts in the …
27th February 2014
In aggreate terms, there is little sign that currency weakness is leading to higher emerging market (EM) inflation. With few signs of a build-up in domestic price pressures either, we expect EM inflation to remain relatively subdued. … EM inflation …
As Ukraine’s political transition progresses, attention has turned to the urgent need for external assistance in order to avoid a balance of payments crisis and possibly even a default on its external debt. There are two key points to note. First, …
26th February 2014
Industry in the highly-open economies of Central Europe has gathered steam in recent months, with output expanding by as much as 6-7% y/y. Manufacturers have been supported by the strengthening of the German economy, into which they are integrated via …
It goes without saying that, with events in Ukraine in an almost constant state of flux, predicting what might happen next is close to impossible. In this Update we outline four factors that will be crucial in determining how events are likely to unfold. …
24th February 2014
Ukraine’s bond market has been pummelled following the escalation of the political crisis in recent days. And the hryvnia has continued to weaken. Elsewhere, Russian and Hungarian assets have performed poorly over the past month. In contrast, the Turkish …
20th February 2014
Russia’s economy slowed further at the start of this year, with output now doing little more than stagnating in year-on-year terms. Nonetheless, the sharp drop in the ruble over the past few weeks has removed any lingering possibility that interest rates …
19th February 2014
Having lowered interest rates by a little more than the market expected today, the Hungarian central bank’s post-meeting communiqué (unusually) didn’t give much away about the outlook for monetary policy. We suspect that, barring a further sell-off in the …
18th February 2014
Our latest Banking Heat Map shows that lending conditions are diverging across the region. Credit growth is gathering pace in countries with healthier banking sectors, such as the Czech Republic, Poland and Slovakia. But in South Eastern Europe and …
17th February 2014
The Central Bank of Russia (CBR) left interest rates on hold today but signalled that it was ready to tighten policy if there were signs that the recent fall in the ruble was fuelling inflation pressures. We don’t think that interest rate hikes are …
14th February 2014
This morning’s raft of flash Q4 GDP estimates from Central and South Eastern Europe was, for the most part, stronger than our above-consensus forecasts and suggests that growth in Emerging Europe as a whole rose at its fastest pace in 18 months. Following …
Turkey’s current account deficit widened sharply at the end of last year, but the recent tightening of monetary policy means it could now start to narrow substantially. Elsewhere in the region, external shortfalls fell in 2013, which helps to explain why …
13th February 2014
The need for economic reform in Russia is now widely accepted. However, a key point that is often overlooked is that a comprehensive programme of reform that takes in a wide range of different areas is needed if Russia is to achieve the type of growth …
12th February 2014
The raft of Q4 GDP data for Central and South Eastern Europe due later this month is likely to show that large parts of the region are on the mend, with Poland now the region’s star performer. We will have to wait longer for Q4 data from the region’s two …
10th February 2014
It’s too soon to fully gauge what impact the recent financial market turmoil and sharp rise in interest rates might have on Turkish growth. But at first glance, there seems to be a real risk that the economy could slip into recession over the coming …
7th February 2014
Following today’s Czech rate-setting meeting, Governor Singer commented that the MPC could end its policy of FX intervention to weaken the koruna by early next year. With the economy recovering and the lagged impact of the weaker currency on import prices …
6th February 2014
The hryvnia has fallen sharply over the past few days, reaching 9/$ earlier today, its lowest level since 2009. We estimate that the currency needs to fall by a further 15% or so, to around 11/$, in order to put Ukraine’s balance of payments position on a …
5th February 2014
Poland’s economic recovery has caused some MPC members to become more hawkish on interest rates. But with inflation likely to remain below target both this year and next, we still think the first rate hike will be delayed until 2015. … First Polish rate …
Following today’s decision to lower Romanian interest rates, Governor Isarescu hinted that the rate cutting cycle may now have come to an end. Policymakers seem to have become concerned that they can’t lower the benchmark rate further without risking a …
4th February 2014
January’s manufacturing PMI data provide further evidence that the economies of Central Europe are enjoying a decent recovery, but that manufacturing in Emerging Europe’s two largest economies, Russia and Turkey, is struggling. … PMI data highlight …
3rd February 2014
As things stand, the recent sharp falls in emerging market (EM) currencies do not appear to be a major threat to EM inflation. Even those emerging economies that have borne the brunt of the currency sell-off do not seem to be on the cusp of a renewed …
31st January 2014
Today’s release of 2013 Russian GDP data suggests that while growth in the rest of Emerging Europe started to recover towards the end of last year, growth in Russia remained extremely sluggish. The old drivers of growth, notably consumer spending, are …
The fallout from the turbulence in EM financial markets has split Emerging Europe into two groups. One group contains Turkey, Russia and Hungary, whose currencies have been among the hardest hit in the emerging world. This reflects deteriorating external …
The sharp sell-off in the ruble over the past week has led some to question whether Russia could be the next EM in line to hike interest rates. For now, we suspect that the Central Bank will stick to FX intervention in order to support the currency. …
30th January 2014
It’s tempting to interpret today’s Polish 2013 GDP data, which showed that growth was as slow last year as it was in 2009, as further evidence of deteriorating growth prospects in the emerging world. But the annual GDP data mask the fact that growth …
The operation of Turkey’s interest rate corridor means that the true extent of monetary tightening announced at last night’s emergency MPC meeting is a little less than the aggressive hike in the benchmark one-week repo rate would otherwise suggest. …
29th January 2014
The Turkish lira has been the worst performing EM currency after the Argentine peso so far this year. This has forced the central bank to announce an emergency MPC meeting later today, at which it looks likely that interest rates will be hiked. Elsewhere, …
28th January 2014
The raft of Russian activity data for December suggests that GDP growth may have picked up a little to around 1.5% y/y in Q4, from 1.2% y/y in Q3. For the year as a whole, this would imply average growth of 1.5% which would mark the Russian economy’s …
27th January 2014
The Ukrainian National Bank’s decision to loosen its grip on the hryvnia will bring benefits in terms of restoring external competitiveness. But there are near-term risks too, including higher inflation and possible strains on banks’ balance sheets. If …
23rd January 2014
Russia’s current account surplus declined over the course of 2013 and, for the first time since the 2008/09 crisis, became insufficient to cover capital outflows. Of course, with over $500bn in FX reserves, Russia’s balance sheet still looks strong. …
22nd January 2014
In spite of the recent sharp fall in the lira, high inflation and rising inflation expectations, the Turkish central bank (CBRT) caved in to pressure from the government and resisted hiking interest rates. As a result, the lira is likely to stay under …
21st January 2014
The recent sharp fall in the lira doesn’t appear to have led to significant FX debt servicing problems for Turkish companies. But given the rapid expansion of corporate FX debt over the past decade, we certainly wouldn’t rule out the possibility that …
17th January 2014
Improved governance appears to have been a key ingredient in Turkey’s economic success story over the past decade. But further reforms will be needed if Turkish incomes are to continue “converging” with those of developed countries. In this context, it is …
15th January 2014
After a torrid run over the past five years, things are looking on the up for Emerging Europe. Of course, the region will remain vulnerable to events in the euro-zone. However, so long as the single currency bloc avoids a relapse in growth, we think the …
13th January 2014
Last month’s EC Economic Sentiment Indicator for Hungary rose to its highest level for over a decade and, on past form, this is consistent with GDP growth of 5% y/y or so. However, it’s worth noting that in previous instances when the economic outlook has …
9th January 2014
Following today's decision to lower interest rates, the Romanian central bank hinted that further policy easing could be on the cards. The country's large external financing needs limit the scope for aggressive rate cuts. But, on balance, we think there …
8th January 2014
The Turkish central bank has been extremely reluctant to raise official interest rates over the past year or so. However, the recent fall in the lira may now force its hand. On balance, we think it is more likely than not that policymakers will raise the …
7th January 2014
The eruption of a high-level corruption scandal in Turkey over the past few weeks has cast a spotlight onto the country's political stability. Better governance appears to have played a key role in attracting the foreign capital inflows that have …
2nd January 2014
Manufacturing PMIs fell across Emerging Europe last month. Russia aside, the PMI readings are still high by the standard of the past couple of years. Even so, today’s data serve as a reminder that the recovery in the region is still fragile. … …
Escalating political protests caused Ukrainian bond yields and CDS premia to spike at the start of the month. However, following the announcement that Ukraine will receive financial assistance from Russia, the markets have rallied. Meanwhile, financial …
20th December 2013
The outbreak of protests in Ukraine has dominated the headlines over the past month. With FX reserves already at perilously low levels, it had looked like the country could be tipped into a full-blown balance of payments crisis. But yesterday's deal with …
18th December 2013
The Turkish central bank took small steps to tighten monetary conditions today but, given the country's vulnerability to Fed tapering, more aggressive measures could be needed next year. In contrast, central banks in the Czech Republic and Hungary …
17th December 2013
Emerging market (EM) inflation remained low by historic standards in November. Recent declines in global commodity prices should dampen inflation over the coming months, while we see little sign of domestic price pressures building. … EM inflation to …
The weakness of the latest inflation data in Central Europe has sparked fears that, like the euro-zone, the region could be at risk of falling into a deflationary spiral. In this Watch , we argue that, while inflation may weaken further over the next …
16th December 2013
The recovery in Emerging Europe has moved onto a firmer footing in recent months and we expect growth to accelerate over the coming quarters. However, the recovery is likely to be patchy and uneven. The economies of Central Europe - notably Poland - will …
13th December 2013
The latest rise in Russian inflation, coupled with mounting concerns over the rapid expansion of consumer credit, mean that even the modest cuts in interest rates that we had pencilled in for early 2014 now look unlikely. We’ve tweaked our forecast and …
Turkish GDP growth held up relatively well in Q3 in spite of the turmoil in the financial markets and a substantial tightening of monetary policy. However, this was made possible by a rapid expansion of credit and coincided with a renewed widening of the …
10th December 2013
