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The latest surge in the Swiss franc has turned the spotlight once again on Emerging Europe’s foreign currency debt problem. As it happens, only Hungary, Poland and Croatia have significant amounts of Swiss franc debt. But for these countries, particularly …
12th August 2011
The fact that Russian GDP growth slowed from 4.1% y/y in Q1 to 3.4% y/y in Q2 is particularly worrying since it suggests that the economy was losing steam even before the recent turmoil in financial markets. This supports our long-standing view that the …
The tumultuous past week in the financial markets has fuelled concerns about the pace of the global, and especially the European, recovery. The Czech economy will be hit harder than most by a slowdown in the euro-zone’s core and we think it will struggle …
10th August 2011
Despite benefiting from generally better fundamentals, no emerging market (EM) is immune from the deepening problems in the US and Europe. Growth everywhere is likely to slow over the next year and, while Asia should continue to outperform, we are …
9th August 2011
The decision by the Central Bank of Turkey to raise its overnight borrowing rate and cut its benchmark 7-day repo rate could do more harm than good: the rise in the overnight rate risks attracting short-term capital inflows, which could eventually prove …
5th August 2011
The Central Bank of Turkey has announced that the MPC will hold an (unscheduled) interim meeting tomorrow, which, it seems, is likely to result in fresh measures to prevent a disorderly adjustment in the lira. Top of the list of policy options is a hike …
4th August 2011
Leading indicators suggest that annual growth slowed in pretty much every economy in the region in Q2 of this year. Unfortunately, rather than being just a temporary blip, we think that this is a sign of things to come and expect growth to disappoint on …
3rd August 2011
The latest Manufacturing PMI data suggest that industrial production growth in the region all but ground to a halt in July. … Industrial production slows to a …
2nd August 2011
Inflation is close to peaking in most countries in Emerging Europe. Indeed, it may already have done so in Russia. … Inflation close to …
29th July 2011
The National Bank of Hungary is in a bind. On the one hand, growth remains pretty sluggish. But on the other, the high level of Swiss franc-denominated household debt limits the scope for, and the impact of, any cut in interest rates. We think that …
27th July 2011
Today’s decision by the Central Bank of Turkey to suspend its daily purchases of US$ should help to stabilise the lira in the very near term. But it does not tackle the underlying concern, namely Turkey’s widening current account deficit. This will …
26th July 2011
The prevailing view that Emerging Europe should be able to avoid contagion from the escalating crisis in the euro-zone could prove to be dangerously complacent. At the very least, strong trade ties should ensure that growth in the region slows over the …
22nd July 2011
Inflation fell sharply in most countries in the region last month, due in large part to a surprise drop in food prices. This appears to have been driven by one-off factors relating to the outbreak of e.coli in Germany. As such, we may see a bounce in food …
20th July 2011
Poland has become the latest country in the region to report slower than expected inflation for June. Once again, the sharp drop in food prices appears to have been caused by one-off factors relating to the outbreak of e.coli earlier this summer. But even …
14th July 2011
In contrast to governments in the euro-zone’s periphery, the economies of Emerging Europe are not facing a solvency crisis. However, large external financing requirements mean the region is vulnerable to a fresh liquidity squeeze – and with the crisis in …
13th July 2011
Although one-off factors such as the e.coli outbreak may be behind the sharp drop in prices of seasonal fruit and vegetables in June, today’s CPI data reveal few inflationary pressures in the region. This supports our view that interest rate rises will …
A decline in China's pig population at the turn of the year is now resulting in a surge in pork prices that probably pushed consumer price inflation above 6% y/y last month. Price pressures for non-food items have actually continued to ease, but headline …
9th July 2011
Poland’s economy remains in something of a ‘sweet spot’ for now, but recent upward revisions to the current account shortfall reinforce our long-standing concerns about the country’s twin deficits. In the near-term this is likely to limit any significant …
8th July 2011
Adding to dovish comments by monetary policy committee members, the statement following today’s decision to leave interest rates on hold in Poland points to a prolonged pause in rate changes. The central bank’s expectation that currently high inflation …
7th July 2011
Today’s retail sales data for the Czech Republic continue to point to subdued domestic demand and the likelihood of only modest economic growth over the next couple of years. With fiscal consolidation continuing and the labour market still weak, there is …
5th July 2011
June’s Manufacturing PMIs suggest that the previously impressive recovery in the region’s industrial sector is now losing steam and that price pressures are starting to ease. … Manufacturing growth slowing, price pressures …
2nd July 2011
Fears of a widespread bubble in emerging markets look overdone, but there are growing signs that rapid capital inflows are stoking problems in several countries. We think the biggest risks lie in Turkey and Brazil, where the threat of a sharp downturn in …
News that Turkish GDP grew by an above-consensus 11% y/y in Q1 of this year confirms what we already knew – the economy is overheating. … Turkish growth is …
1st July 2011
The economies of Emerging Europe are running into external headwinds. The most obvious of these is the deepening sovereign debt crisis in the euro-zone, which, despite the fact that Greece looks to have averted a near-term disaster, is still far from …
The relative valuations of emerging market equities and bonds are no longer as attractive as they have been in the past. But the fears of overheating and hard landings that have held many back so far this year are generally exaggerated or at least …
The Central Bank of Turkey kept interest rates on hold today and gave no hint that it will resort to more conventional measures to cool an economy that is showing clear signs of overheating. The key point, however, is that while policymakers at the …
24th June 2011
May’s Economic & Social Indicators report suggests that a pick-up in consumer spending and investment is offsetting a slowdown in industrial production, leaving the Russian economy on track to expand by 4.5% y/y or so in Q2. But while this seems solid …
22nd June 2011
Headline inflation has remained at uncomfortably high levels across the region, at the same time as activity in industrial and service sectors is beginning to wane. This underscores the policy dilemma facing the monetary authorities. On the one hand, any …
17th June 2011
The surprise acceleration of Polish inflation in May confirm the buoyancy of the economy but reflects mainly the impact of three temporary factors – global food and fuel price inflation and a rise in the VAT rate in January. These should start to unwind …
16th June 2011
As the dust settles on last weekend’s parliamentary elections, the immediate priority for policymakers will be to cool an economy that is displaying increasing signs of overheating. This will require tightening both fiscal and monetary policy. But while …
15th June 2011
Victory in the elections held in Turkey yesterday ensures an unprecedented third term for the Justice and Development Party (AKP). But the positive market reaction, including a stockmarket rally and strengthening exchange rate, could be short-lived as …
14th June 2011
The statement following today’s Polish interest rate hike was more dovish than in recent months, highlighting the risks to the recovery and the hope that front-loading monetary tightening will support a soft landing. With global commodity prices set to …
8th June 2011
The past few months have brought further signs that, after a torrid couple of years, the region’s banking sector is starting to find its feet. But credit growth is likely to remain subdued across most of the region for the foreseeable future, providing a …
6th June 2011
Today’s PMI data for the Czech Republic, Poland, Russia and Turkey provide further evidence of a slowing recovery in Emerging Europe. Much of the buoyancy of manufacturing output has been driven by export demand, especially from the EU. With the euro-zone …
1st June 2011
Q1 GDP data from Poland show that the economy got off to a solid start in 2011. The twin budget and current surpluses are an ongoing concern. But the country is set to retain its position at the front of the pack for now, with GDP likely to grow in line …
31st May 2011
The raft of Q1 GDP data released earlier this month confirmed that the region’s economies are still expanding, but that the pace of growth remains disappointing, particularly given the depth of the recession in 2009. Romania surprised on the upside, …
26th May 2011
The spike in inflation that has dominated the headlines in recent months should be short-lived. In most countries, rising inflation has been driven by higher food and energy inflation, which in turn has been the result of the spike in global commodity …
25th May 2011
Inflation is causing serious headaches for policymakers across Emerging Europe. With the exception of the Czech Republic, headline CPI ticked up everywhere last month, and is now well above target in Hungary, Poland and Romania. … Inflation fears to fade …
20th May 2011
Media reports suggest that the Hungarian government is close to unveiling a draft plan aimed at dealing once and for all with the legacy of the FX-debt boom that brought the country’s banking sector to its knees in late-2008. But the reality is that the …
19th May 2011
Today’s decision by the National Bank of Hungary (NBH) to keep interest rates on hold at 6.00% for the fourth consecutive meeting underlines how inflation fears have slipped down policymakers’ list of concerns. The market has scaled back its tightening …
16th May 2011
The fact that Russian growth slowed in Q1 despite the surge in oil prices suggests that all is not well in Emerging Europe’s largest economy. Growth should accelerate over the second half of the year, but the signs that investment has collapsed casts a …
The flurry of Q1 GDP data released today suggests that the recovery in Emerging Europe is progressing, although the pace of growth is a touch disappointing given the recent strong expansion in key exports markets (notably, Germany). With external …
13th May 2011
The National Bank of Poland’s (NBP) surprise decision to raise interest rates by 25bps to 4.25% today does not change the bigger picture that the pace of tightening currently priced into the forward market looks too aggressive. … Surprise Polish rate hike …
11th May 2011
Today’s industrial production data (for Bulgaria, the Czech Republic, Romania, Slovakia and Turkey) were weaker than expected, and reflect our concern that the export-led recovery may be starting to falter. As external demand slows this year, we expect …
9th May 2011
In contrast to the prevailing consensus, we believe that there is compelling evidence to suggest that the preservation of sovereign currencies – as opposed to euro-adoption – offers the best route to prosperity for Emerging Europe. Accordingly, while some …
5th May 2011
Today’s release of Polish PMI data for April, together with a similar release from the Czech Republic earlier this week, suggests that the industrial rebound in Central Europe remains in pretty good shape. Nonetheless, the marked falls seen in the Russian …
4th May 2011
The pick-up in Turkish inflation to 4.3% y/y last month is only the thin end of the wedge and we expect it to rise to over 7% by Q1 2012. Against the backdrop of yet more bad news on the trade deficit, evidence of overheating – and the threat of a hard …
3rd May 2011
Each successive stage of the euro-zone crisis has had a progressively smaller impact on financial markets in Emerging Europe, to the extent that this month’s bailout of Portugal barely registered on the radar of investors in the region. … Markets shrug …
26th April 2011
Today’s decision by the Central Bank of Turkey to keep interest rates on hold at 6.25% but raise bank reserve requirements on short-term lira and FX deposits is a clear signal that there will be no immediate shift away from the Bank’s ‘unorthodox’ …
21st April 2011
Higher oil prices have not yet fed through to a pick-up in the Russian economy. In fact, if anything the annual rate of GDP growth appears to have slowed in Q1. … Russia: No sign of a boost from higher oil prices... …
20th April 2011
