Manufacturing PMIs (Sep.)

The manufacturing PMIs for September provide additional signs that supply constraints continued to weigh on output in Central Europe, although it seems that price pressures eased further.
Liam Peach Emerging Markets Economist
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Ukraine's financial markets remained under pressure this week as investors appear to have priced in a more serious outcome regarding Russia-Ukraine tensions. A positive reaction to today's talks between the US and Russia has brought some relief but, even if a renewed conflict doesn't materialise, local markets are set to face a difficult few months. Meanwhile, oil prices closed in on $90pb this week and we've revised up our year-end Brent crude forecast to $70pb (from $60pb). This will help support Russia's budget and current account surpluses, but will add 0.2-0.3%-pts to inflation elsewhere in the region and cause current account balances to worsen.

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Hawkish CNB accelerates its tightening cycle

The Czech National Bank (CNB) stepped up the pace of its tightening cycle with a 75bp interest rate hike, to 1.50%, at today’s meeting and its hawkish communications signalled that further aggressive hikes will be delivered in the coming months to tackle inflation. We now think that interest rates will rise to 3.25% in this cycle (previously 2.75%).

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Economic Sentiment Indicators (Sep.)

The continued fall in the EC’s Economic Sentiment Indicators for September provides further evidence that the regional recovery in Central and Eastern Europe has slowed in Q3 as supply disruptions have taken their toll on industry and the re-opening boost to services sectors has faded.

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Gas prices rocket, CBRT tinkers, chip shortages mount

The recent surge in European gas and coal prices adds to the price pressures facing the region and will push headline inflation rates further above central banks' targets in the coming months. Meanwhile, the decision by Turkey's central bank to hike FX reserve requirements this week should help to mitigate the impact of the phasing out of the reserve option mechanism next month. The move also comes against a backdrop of growing expectations that the central bank is on the cusp of an easing cycle. Finally, data this week showed that shortages of semiconductors hit the Czech auto sector hard over the summer and the latest signs suggest that the sector will continue to struggle for a while yet.

17 September 2021
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