Is it time to worry about Romania’s current account?

The widening of Romania’s current account deficit to a 10-year high partly reflects a rise in foreign firms’ reinvested earnings which is not a concern. But the trade balance has also worsened and the share of the deficit financed by stable forms of capital inflows has fallen. This makes the leu vulnerable to a deterioration in investor sentiment, and presents an upside risk to our interest rate forecast.
Nicholas Farr 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

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Emerging Europe Data Response

Manufacturing PMIs (July)

The PMIs for July suggest that supply chain disruptions weighed on output in Czechia and Poland and continued to put upward pressure on prices. Meanwhile, the releases suggest that manufacturing demand softened in Russia but strengthened in Turkey. The recent rise in new virus cases in the latter is a concern.

2 August 2021

Emerging Europe Data Response

Economic Sentiment Indicators (July)

The EC’s Economic Sentiment Indicators showed a surprising fall in regional sentiment in July, but we suspect that this was a blip rather than the start of a trend. We still expect growth to be strong in Q3, although evidence of growing price pressures in the survey suggests inflation pressures will remain high.

29 July 2021

Emerging Europe Economics Weekly

Israel’s virus resurgence, re-opening inflation in CEE

The experience of Israel in recent weeks serves as a reminder that vaccine campaigns across Emerging Europe still have some way to go and that we are likely to have to learn to live with COVID long term. Meanwhile, the breakdown of the June inflation figures released this week for Poland and Czechia showed that price pressures in services sectors have picked up strongly since the re-opening. This may give some more ammunition to the hawks at the Czech central bank but we don’t think it will change the assessment at Poland’s central bank that the rise in inflation this year will be transitory.

16 July 2021
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