The latest on the virus and vaccines

The sharp fall in virus cases and increase in the rate of vaccinations since March means that a sustained economic recovery in Central and Eastern Europe looks set to begin over the coming months. But, the latest decline in infections in Turkey is probably too late to avert a fresh downturn in activity this quarter.
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

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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 (June)

The PMIs for June suggest that manufacturing sectors strengthened in Turkey, Czechia and Poland but weakened in Russia. Meanwhile, in Czechia and Poland, supply chain disruptions intensified, and there was further evidence of price pressures building across the region.

1 July 2021

Emerging Europe Data Response

Economic Sentiment Indicators (June)

The EC’s Economic Sentiment Indicators showed a further rise in regional sentiment in June, driven by improvements in retail and services sectors. That said, there is also continued evidence of growing price pressures in the region, with firms reporting higher selling price expectations across various sectors.

29 June 2021

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Turkey’s quick turnaround, Russia’s latest intervention

The sharp improvement in Turkey’s virus situation has brightened the near-term outlook and presents a risk to our view that the central bank will start an aggressive easing cycle in the coming months. Meanwhile, the temporary export duty imposed on certain metal products in Russia this week is yet another sign that the government is becoming more concerned about the consequences of high and rising inflation.

25 June 2021
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