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.
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Emerging Europe Data Response

Poland Activity Data (Dec.)

The latest activity data in Poland show that industry expanded strongly in Q4 but that the shine came off the retail sector amid falling consumer sentiment and surging inflation. We think that GDP expanded by around 6.8% y/y (1.1% q/q) in Q4 which would leave Poland as the best performing economy in the region, but that the recovery will slow a touch at the start of this year.

24 January 2022

Emerging Europe Economics Weekly

Ukrainian markets feel the heat, oil nearing $90pb

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.

21 January 2022

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

More from Emerging Europe Economics Team

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.

27 May 2021

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 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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