Emerging Europe

Emerging Europe Economic Outlook

Emerging Europe Economic Outlook

Mounting headwinds to take the shine off the recovery

We expect regional GDP growth to come in below expectations this year as high inflation erodes households’ real incomes and policy becomes more restrictive. Despite this view on the growth outlook, we think that persistent capacity constraints will mean that inflation ultimately settles at a higher level than is currently appreciated. This feeds into our relatively hawkish interest rate forecasts, particularly in Russia, Poland and Czechia.

20 January 2022

Emerging Europe Economic Outlook

Near-term recovery to face stronger headwinds

The region has experienced a rapid recovery, but the re-opening boost has now faded and the region is likely to face stronger headwinds in the near term due to surging COVID-19 cases, rising inflation and supply disruptions. Central European economies are vulnerable to shortages of key production inputs in the auto sector and low vaccine coverage countries such as Russia, Romania and Ukraine look most at risk of imposing tighter containment measures. Inflation is likely to remain stubbornly high over the coming months and central banks are likely to continue their front-loaded tightening cycles well into next year.

20 October 2021

Emerging Europe Economic Outlook

Strong recovery, but inflation a lasting concern

Rapid recoveries are underway across the region and GDP should return close to its pre-pandemic path sooner than in most other EM regions. While the spread of highly transmissible virus strains poses the greatest threat to the near-term outlook, high vaccine coverage means that we do not think it will derail the recovery. The economic rebound is likely to use up spare capacity quickly and keep inflation pressures stronger than in other parts of the EM world. Further interest rate hikes lie in store in Russia, Czechia and Hungary in the coming months, with Poland set to join next year.

21 July 2021
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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.

Emerging Europe Economic Outlook

A weak Q1, but vaccines to drive strong recovery

Prolonged containment measures mean that activity in Emerging Europe will remain depressed for longer than we had previously expected. But the region is well-placed to access and distribute vaccines, which should allow activity to recover more quickly than in most other EM regions. The outlook is brightest in Central Europe, while Russia’s recovery will be held back by a tighter fiscal stance. Turkey’s central bank will keep monetary conditions tight, which will help it to claw back its battered credibility, although it will take the steam out of the economy. Inflation should ease sharply this year in Russia and Central Europe, and we think that interest rates will be kept low for longer than investors and most analysts currently expect.

Emerging Europe Economic Outlook

Strong recovery suffers a setback

Fresh virus outbreaks and tighter containment measures mean that the economies of Emerging Europe are likely to suffer a fresh downturn in Q4, but we still think that the region will bounce back more strongly from the crisis than many other parts of the world in 2021. Central Europe will lead the way, but it will take longer for the economies of Russia and Turkey to return to their pre-virus growth paths. Monetary policy in Russia, Poland, and the Czech Republic is likely to be looser than is currently priced into financial markets. But in Turkey and Hungary, the direction is skewed towards further tightening.

Emerging Europe Economic Outlook

Central Europe to drive a solid recovery

The economies of Emerging Europe are set to bounce back more strongly from the coronavirus crisis than those in many other parts of the world. Central Europe will lead the recovery. Governments have had success in slowing the spread of the virus and, as restrictions continue to be loosened, large fiscal and monetary policy support will underpin a strong rebound in activity. Recoveries will be slower in Turkey and Russia. In Turkey, the recent credit boom will support demand, but the recovery will be held back by the country’s reliance on tourism. And in Russia, the government’s limited fiscal response will increase the risk of long-term scarring on the economy and mean that it takes longer for output to recover.

Emerging Europe Economic Outlook

Deepest contraction since the collapse of communism

Emerging Europe will experience its largest decline in real GDP this year since the collapse of the Soviet Union. The aggressive policy response across Central Europe and the ability of the authorities there to bring the virus under control mean that activity is likely to bounce back more strongly than in Russia and Turkey, where the policy response has been much slower. Banking sectors across the region are generally better placed to weather an economic downturn than they were in 2008/09, but the key exception is Turkey where large vulnerabilities in the banking system may crystallise.

23 April 2020
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