Emerging Europe

Emerging Europe Economics Weekly

Emerging Europe Economics Weekly

Lira crisis, MNB hikes, Ukraine-IMF, Romanian politics

This week has been dominated by the collapse in the Turkish lira and all our research on the crisis can be found here. While Turkey’s problems have been driven by a ‘head-in-the-sand’ approach to inflation and falls in the lira, Hungary’s central bank tightened policy further this week amid signs that officials across Central Europe are taking the inflation fight more seriously and becoming less tolerant of currency weakness. Elsewhere, the early signs are that a new grand coalition in Romania does not have the appetite for much-needed austerity. Finally, the latest tranche of IMF funds provide a welcome boost for Ukraine’s economy.
Drop-In: Why is Asia sitting out the global inflation surge? 09:00 GMT/17:00 HKT, Thursday 2nd December https://event.on24.com/wcc/r/3546145/A9D34EF592141BEFCAC819ADB40359D5?partnerref=report

26 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

Emerging Europe Economics Weekly

CEE inflation worries mount, Turkish lira closing in on 10

Inflation data out of Central and Eastern Europe this week provided for ugly viewing and with headline rates likely to rise further above central bank's targets in the coming months, this will keep the onus on policymakers to raise interest rates aggressively. Meanwhile, it's been another awful week for the Turkish lira which is closing on the psychologically important level of 10/$. Worries about domestic economic policymaking are growing and will continue to do so next week if the central bank delivers another large interest rate cut, as we expect.

12 November 2021
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Emerging Europe Economics Weekly

Israel passed a budget, hawks in flight, Turkey déjà vu

The Israeli budgets for 2021 and 2022 passed this week – the first approved budgets in three years – don’t make a big difference to the direction of fiscal policy, but contain key reforms that may help to support growth in the medium term. Elsewhere, the hawkish surprises from central banks in Poland and Czechia this week are likely to be followed by Romania's central bank at its meeting next week. Finally, concerns have continued to build that Turkey is on the brink of another currency crisis - while there are similarities with 2018, one key difference is that the lira does not look misaligned as the current account is in much better shape.

Emerging Europe Economics Weekly

Turkey’s spat, Poland-EU dispute and the zloty

A diplomatic spat between Turkey and its Western allies this week was quickly resolved, but it highlighted how vulnerable the lira is to geopolitical developments. And comments from Turkey’s central bank governor suggest that policymakers are becoming more tolerant of falls in the currency. Elsewhere, the European Court of Justice’s decision to impose a daily penalty of €1m on Poland adds to signs that the disbursement of EU funds to Poland will be delayed further. Perhaps more immediately, one of the casualties has been the zloty.

Emerging Europe Economics Weekly

Surging virus cases and the re-imposition of lockdowns

A renewed wave of COVID-19 cases has prompted some governments to reimpose strict containment measures across Emerging Europe and talk of lockdowns is now becoming more widespread. The experience so far during the pandemic is that tighter containment measures need not result in a large hit to activity. But the latest virus waves add to the growing near-term headwinds in the region from rising inflation and supply disruptions to industry and we think that recoveries will slow sharply in Q4.

Emerging Europe Economics Weekly

Erdogan playing with fire, Russia’s commodity boom

After putting the final nails in the coffin of the Turkish central bank's credibility with last month's surprise interest rate cut, the grave started to be dug this week with the firing of three MPC members. Further large interest rate cuts seem increasingly likely and the lira is heading in only one direction - the risk of a balance of payments crisis akin to that in 2018 will mount. Meanwhile, Russia's balance sheets have improved markedly in recent months amid the surge in global commodity prices, but we think any additional boost from loose fiscal policy will be limited and the factors supporting the ruble are likely to turn into slight headwinds next year.

Emerging Europe Economics Weekly

Poland-EU conflict, CEE tightening, auto sector woes

The decision this week by Poland's Constitutional Court to rule that some EU laws are in conflict with the Polish Constitution has sent shockwaves through Europe and raises the possibility that the release of some of Poland's share of the EU Recovery Fund will be delayed. Meanwhile, Poland and Romania joined the monetary tightening club this week and we think that further rate hikes will be delivered to tame inflation. But vague communications from Poland's central bank suggest that its tightening cycle may be slower than we had thought likely. Finally, more news this week about the disruption to auto production in Central Europe means that the recovery will probably struggle in Q4.

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