Economic Sentiment Indicators (Feb.)

The EC’s Economic Sentiment Indicators (ESIs) showed an improvement in sentiment across Central and Eastern Europe in February. A broad-based pick up in services sentiment drove the increase, while manufacturing sentiment was hit by supply disruptions. But the re-tightening of virus containment measures amid a renewed surge in infections is likely to weigh on sentiment in March.
Bethany Beckett Assistant Economist
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Emerging Europe Economics Weekly

Omicron & tightening cycles, Turkey into the unknown

While a lot is still unknown about the Omicron variant, we don’t think it will prevent central banks from delivering further large interest rate hikes - Poland will be a case in point next week, where we expect a 75bp rate hike. The key exception is Turkey, where the departure of Finance Minister Elvan this week adds to signs that policymakers are not prepared to respond to the recent falls in the lira with an orthodox approach. The currency will remain under pressure and this week’s interventions in the FX market suggest policymakers’ tolerance of a weak lira is being tested. These interventions cannot be sustained and soft capital control may be the next port of call.

3 December 2021

Emerging Europe Economics Update

Turkey & the macro fallout from past “sudden stops”

The history books show that currency crises in other parts of the emerging world in recent decades have resulted in peak-to-trough falls in GDP of around 8% on average and pushed headline inflation up by 25%-pts from its latest trough. The latest crisis in Turkey is likely to result in a downturn that sits towards the milder end of the spectrum and, so long as the lira stabilises, the peak in inflation is likely to be in the region of 25-30% y/y in the next few months.

3 December 2021

Emerging Europe Data Response

Turkey Consumer Prices (Nov.)

The rise in Turkey’s headline inflation rate to 21.3% y/y in November will almost certainly be followed by further chunky increases over the coming months that take it to 25-30% as the effects of the recent currency crises continue to filter through. With no sign that President Erdogan will permit an orthodox policy response in the form of large interest rate hikes, the lira will struggle to recoup its losses and inflation will remain at these very high levels throughout much of the next six-to-nine months.

3 December 2021

More from Bethany Beckett

Capital Daily

US payrolls and Treasury yields

Although the 10-year Treasury yield hardly moved after today’s release of the US Employment Report for June, we still expect it to resume its rise before long.

2 July 2021

FX Markets Update

Weighing up the prospects for the NOK

We think that the Norwegian krone will continue to strengthen against the euro over next year or so. This is despite our forecast for a pull-back in oil prices and reflects our view of the relative prospects for monetary policy in Norway and the euro-zone.

1 July 2021

Capital Daily

We think that returns from US corporate bonds will underwhelm

US corporate credit spreads have reached post-Global-Financial-Crisis (GFC) lows in recent weeks. So, despite our forecast for a healthy US economy, we expect US corporate bonds to outperform Treasuries only very slightly.

22 June 2021
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