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.
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Emerging Europe Economics Weekly

Lira crisis, MNB hikes, Ukraine-IMF, Romanian politics

This week has been dominated by the collapse in the Turkish lira and all our research on the crisis can be found here. While Turkey’s problems have been driven by a ‘head-in-the-sand’ approach to inflation and falls in the lira, Hungary’s central bank tightened policy further this week amid signs that officials across Central Europe are taking the inflation fight more seriously and becoming less tolerant of currency weakness. Elsewhere, the early signs are that a new grand coalition in Romania does not have the appetite for much-needed austerity. Finally, the latest tranche of IMF funds provide a welcome boost for Ukraine’s economy.
Drop-In: Why is Asia sitting out the global inflation surge? 09:00 GMT/17:00 HKT, Thursday 2nd December https://event.on24.com/wcc/r/3546145/A9D34EF592141BEFCAC819ADB40359D5?partnerref=report

26 November 2021

Emerging Europe Economics Update

Turkey: how strong is the fiscal picture?

Turkey’s public finances have become more vulnerable to falls in the currency in recent years, although we think the likelihood of sovereign default is very low. Perhaps the bigger risk for the public finances is that the pressure on the central bank to focus on growth is matched by a shift to a looser fiscal stance, causing the debt dynamics to worsen.

25 November 2021

Emerging Europe Economics Update

Macro fundamentals to support further shekel strength

The Israeli shekel has appreciated sharply in the past few weeks, making it one of the best performing currencies during the pandemic. While we don’t expect this recent strength to continue in the very near term, we think that Israel’s macro fundamentals will support further appreciation over the next few years. In view of the wider interest, we are also sending this Emerging Europe Update to clients of our FX Markets service.

24 November 2021

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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 Economic Outlook

Near the front of the EM pack

Third virus waves and the slow vaccine rollout will weigh on near-term growth in the region, but we expect a strong recovery in activity to take place later this year and in 2022. Our forecasts for growth are generally above the consensus and we think the lasting impact of the pandemic will be smaller than in other EM regions. Inflation will remain above central bank’s targets in most countries. We expect interest rate hikes in Russia and Czechia this year, but the prospect of monetary tightening remains some way off in Poland and Israel. Turkey is an exception, where the central bank looks set to embark on an easing cycle, but this will continue to feed into further sharp falls in the lira and high inflation.

26 April 2021

Emerging Europe Data Response

Manufacturing PMIs (Jun.)

June’s PMI data point to a marked slowdown in industrial output growth in Central Europe over the coming quarters. Elsewhere, Turkey’s latest PMI reading suggests that, following a disappointing Q2, economic conditions may have improved a little in Q3. Even so, these survey data are still very weak by historical standards and any recovery is likely to remain slow-going.

1 July 2019
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