Emerging Europe

Emerging Europe Chart Book

Emerging Europe Chart Book

Re-opening boost fades as supply disruptions mount

Economies across Emerging Europe enjoyed a rapid rebound in Q2, but all the signs suggest that the recovery has come off the boil in Q3. Surveys of sentiment in services sectors have started to flatline and, in some cases, fall. What’s more, hard activity data show that supply chain disruptions and raw materials shortages have taken a greater toll on industry. Manufacturing in Poland’s electronics sector has fallen sharply and auto sectors in Czechia and Hungary have been hit hard. We think economies will still post robust rises in GDP in Q3, but the risks lie to the downside and suggest that the regional recovery may return to a steadier pace of growth earlier than we had expected.

29 September 2021

Emerging Europe Chart Book

Inflation pressures mount as activity rebounds

Recoveries across Emerging Europe accelerated in Q2 as the easing of virus restrictions pushed GDP to, or above, pre-pandemic levels in most countries and we think this momentum will continue in Q3. However, the recovery has been accompanied by a marked increase in price pressures. Consumer and producer price inflation reached multi-year highs in July and shows no sign of letting up. We think inflation will fall only slightly in Russia and Turkey by year-end and will rise further above central banks’ targets in most of Central Europe. Interest rates are likely to be raised further in Russia, Ukraine, Czechia and Hungary and the risks are skewed to tightening cycles starting earlier than we currently expect in Poland and Romania.

26 August 2021

Emerging Europe Chart Book

Activity rebounding as economies re-open

The region’s economies have continued to rebound strongly over the past month as virus outbreaks have largely been contained and restrictions have been lifted. Surveys of sentiment in the services sector have surged and high-frequency mobility data have risen far above pre-pandemic levels. Turkey’s recovery seems to have been particularly rapid since the end of its lockdown in May. Admittedly, there are reasons to be cautious. Israel’s re-opening boost seems to be fading, the Czech auto sector has been hampered by shortages of inputs and the highly transmissible Delta variant has now become the dominant strain in most places. But vaccine coverage is generally high and we think recoveries will make further headway in Q3.

28 July 2021
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Emerging Europe Chart Book

Recovery takes hold and inflation pressures build

Economic activity across Emerging Europe is rebounding strongly now that virus waves have passed and restrictions have been lifted. The recovery in Q2 looks to have been strongest in Russia, Israel and Central Europe, but we think Turkey will also join in the regional recovery in Q3. Inflation has picked up across the region and price pressures are likely to remain strong in the coming months, keeping central banks in Russia, Hungary, and Czechia in tightening mode. But we don’t think there will be appetite for rate hikes in Poland until next year and we expect Turkey’s central bank to start an easing cycle in the coming months (lira permitting).

Emerging Europe Chart Book

Inflation risks build, central banks start to react

The strength of inflation and expectations for a strong economic recovery have prompted a clear hawkish shift among Central European central banks. We think it will take time for a majority in favour of rate hikes to form in Poland, but Hungary and Czechia now look as though they will join Russia and Turkey in being among the first EM central banks to raise rates as they come out of the pandemic.

Emerging Europe Chart Book

Third waves subside, outlook brightens

Third virus waves held back recoveries in most countries in Q1, but the good news is that they appear to have peaked as new daily COVID-19 cases have fallen since mid-March. Russia has so far avoided a third wave and easing pressures on health systems prompted some governments in Central and Eastern Europe to start easing restrictions over the past month. Turkey is an exception where containment measures have been tightened. Recoveries will struggle to make much headway in Q2, but vaccination rollouts have gained pace this month. The re-opening of Israel’s economy has driven a rebound in activity and Hungary appears next in line to re-open its economy. In the rest of the region, we think the most harmful restrictions will be lifted in the next few months, paving the way for a sustained recovery in activity from Q3.

28 April 2021

Emerging Europe Chart Book

Region leading the EM central bank policy shift

Emerging Europe has been at the heart of the shift in EM monetary policy over the past month, with central banks in Russia, Turkey and Ukraine raising interest rates in March. The triggers for tightening were largely home grown in nature, including a surge in inflation in Russia and Ukraine and Turkey’s attempt (now undermined) to improve its credibility and tackle inflation, rather than a reaction to the global bond market sell-off. Further interest rate hikes are likely to be front-loaded in Russia and Ukraine to tame inflation. Meanwhile, central banks in Hungary and Romania sounded more cautious about the inflation outlook and we no longer expect interest rate cuts there this year. The exception was Poland’s central bank, which sent a clear message that it is willing to keep policy loose for some time to support the recovery.

25 March 2021

Emerging Europe Chart Book

Headwinds to the recovery mount

Emerging Europe came through the second virus wave in Q4 in a better state than we had expected, with services sectors holding up and industry booming in Central Europe. But the headwinds have mounted recently. The extension of virus containment measures has weighed on sentiment and indicators of mobility in February have remained depressed. The threat of renewed virus waves is becoming a bigger concern in Central Europe and policymakers look set to keep restrictions in place for longer than we had assumed, or even tighten them further. At the same time, the vaccination rollout is not yet out of first gear, and there is a growing chance that this delays the recovery for longer.

24 February 2021
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