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Recession risks take centre stage

The Russian economy will collapse this year and we expect spillovers from the war in Ukraine to cause a recession in many of the smaller countries in the region, particularly Bulgaria and the Baltic States. Loose fiscal policy and strong labour market dynamics should help Poland and Hungary outperform but, even so, we’re more downbeat on GDP growth in all major economies than the consensus. We think inflation will end the year stronger and interest rates higher than most expect. The economic backdrop of widening macro imbalances, the euro-zone recession risk and aggressive global monetary tightening will cause the region’s currencies to depreciate.
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Emerging Europe Economics Update

Russian sovereign default more symbolic at this stage

Russia’s government has now reportedly defaulted on its foreign-currency denominated debt for the first time since 1918, but this is a largely symbolic event that is unlikely to have an additional macroeconomic impact. Sanctions have already done the damage and locked Russia out of global capital markets.

27 June 2022

Emerging Europe Economics Weekly

Governments collapse, Russia set to default

Governments in Israel and Bulgaria collapsed this week which may delay support to households over the cost of living. The threat to Bulgaria’s economy is probably greater, as political instability also puts EU fund inflows and the ability to secure gas supplies at risk. Elsewhere, a 30-day grace period for Russia’s government to make interest payments on Eurobonds ends on Sunday. While Russia has signalled that it is willing to make the payments in rubles, this would be a breach of the contract and could mark Russia’s first default on foreign currency debt since the Bolshevik revolution.

24 June 2022

Emerging Europe Economics Update

CBRT: knock knock, anybody there?

High inflation, falls in the lira and aggressive monetary tightening elsewhere are clearly not enough to persuade Turkey’s central bank to lift interest rates, as it left its policy rate at 14.00% today. Disorderly falls in the lira are a major risk, which would probably be met with capital controls rather than rate hikes.

23 June 2022

More from Emerging Europe Economics Team

Emerging Europe Chart Book

Russia entering recession, slowdowns in CEE

The war in Ukraine has devasted its economy, while Western sanctions are likely to push Russia into a deep contraction, with GDP set to fall by 12% this year. Immediate fears of a Russian sovereign default have not materialised and Russia’s financial markets have rebounded in recent weeks, but it’s unclear for how long this will continue. A more sustained recovery will probably require a peace deal which still looks far away. Meanwhile, spillovers from the war will be felt acutely in Central and Eastern Europe (CEE). Industry will be hit by supply disruptions and higher inflation will weigh on households’ real incomes and dampen consumer spending. We expect the war to shave 1.0-1.5%-pts off growth in CEE this year.

30 March 2022

Emerging Europe Chart Book

War in Europe

Russia’s military invasion of Ukraine has caused turmoil in financial markets across the region. Western nations have imposed sanctions on Russia, including targeting some of its largest banks and their access to the international financial system. Sanctions so far fall short of the ‘nuclear’ option of hitting Russia’s energy sector but the imposition of these will likely depend on the scale of the conflict. Russia’s economy is in a strong position to weather the effect of sanctions but growth is likely to weaken from here, exacerbated by the significant tightening in financial conditions this week. And the rest of the region is likely to be hit via trade ties and higher energy prices, which will keep inflation high for a prolonged period of time.

25 February 2022

Emerging Europe Chart Book

Industry shifts into gear amid signs of easing shortages

Industry across Emerging Europe turned a corner in Q4 as auto production rebounded strongly. This comes amid signs that supply shortages are starting to ease; our proprietary shortages dashboard suggests that product shortages may have peaked. We think industry will continue to recover in the coming months as shortages ease gradually. But consumer-facing sectors struggled in Q4 due to rising virus cases, tighter restrictions, greater consumer caution and surging inflation. This is likely to remain the case early this year too, dampening activity in Q1. Many countries have made good progress rolling out third vaccine doses which should lessen the hit from the current Omicron wave and support the economic recovery in general, but the risk is that those countries with much lower vaccine coverage face continued headwinds to growth.

27 January 2022
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