Macro fundamentals to support further shekel strength

The Israeli shekel has appreciated sharply in the past few weeks, making it one of the best performing currencies during the pandemic. While we don’t expect this recent strength to continue in the very near term, we think that Israel’s macro fundamentals will support further appreciation over the next few years. In view of the wider interest, we are also sending this Emerging Europe Update to clients of our FX Markets service.
Liam Peach Emerging Markets Economist
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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 Liam Peach

Emerging Europe Data Response

Poland Activity Data (Oct.)

The latest data suggest that Poland’s economy started Q4 with solid momentum as industry and retail sales expanded strongly in October. We think that industry will continue to hold up well in the coming months, but headwinds from surging inflation and rising virus cases are likely to take a toll before long.

23 November 2021

Emerging Europe Economics Update

BoI offers no new guidance, 2022 rate hike still in play

The Bank of Israel (BoI) left its policy rate on hold at 0.10% as expected at its meeting today, confirmed that it will end its bond purchase programme next month and emphasised that it will continue to intervene in the FX market for as long as necessary. The strengthening of the shekel will bear down on inflation, but we think that an interest rate hike next year remains in play.

22 November 2021

Emerging Europe Economics Weekly

Turmoil in Turkey, MNB delivers, COVID divergence

It's been a turbulent week for Turkey, with the lira falling by around 11% against the dollar and we've looked extensively at the key implications for the economy and financial system. We'll be hosting a drop-in session on Tuesday to answer any key questions. (Sign up here.) Meanwhile, Hungary's central bank stepped up to the plate with a 70bp hike to its one-week deposit rate this week and further large increases are likely to push interest rates to 4% next year. Finally, there are some encouraging signs that new COVID-19 cases are starting to fall in parts of Eastern Europe, but cases have surged in Central Europe and tightening virus restrictions will sap recoveries of momentum.

19 November 2021
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