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Emerging Europe

Emerging Europe Economics Weekly

Emerging Europe Economics Weekly

Hungary tightening, ruble strength, Bulgaria support

Officials in Hungary sought this week to reassure investors that they will tackle inflation and mounting macro imbalances. Tighter policy is needed, which underpins our below-consensus growth forecasts. Elsewhere, the Russian ruble strengthened beyond 60/$ this week – its strongest level since 2018 – which, combined with the stabilising inflationary backdrop, will give the CBR the confidence to ease capital controls and cut interest rates further. Finally, Bulgaria announced measures to shield the economy from high inflation this week, but we doubt that it will be enough to prevent a recession.

20 May 2022

Emerging Europe Economics Weekly

Gas supplies at risk, CNB shake-up, Turkey FX restrictions

Russia’s sanctions on European energy companies and the closure of the Sokhranivka transit point in Ukraine this week are a sign that the risk of energy supply disruptions in Central and Eastern Europe is increasing. Meanwhile, changes to the board of the Czech central bank over the coming months, starting with this week’s appointment of Aleš Michl as the next governor, could pave the way for a more dovish MPC that cuts interest rates quickly once inflation drops back. Finally, reports of Turkey’s increased oversight over FX transactions could be the first step towards restrictions that threaten to disrupt activity. EM Drop-In (17th May): Do current EM debt strains point to a repeat of the kinds of crises seen in the 1980s and 1990s? Join our special briefing on EM sovereign debt risk on Tuesday. Register now.

13 May 2022

Emerging Europe Economics Weekly

Is the ruble now too strong? EU oil embargo gets close

The Russian ruble continued its remarkable rally this week, rising to a two-year high of 66/$ but we think it may now be too strong and that the Russian authorities will soon ease some restrictions on FX conversion. Meanwhile, the EU's proposed embargo of Russia oil imports has met resistance from CEE economies and we suspect that they will continue to push for a longer transition period to give them time to move away from Russian oil. Even so, a longer transition for some CEE countries won't prevent a sharp fall in Russia oil exports this year. China Drop-In (12th May, 09:00 BST/16:00 SGT): Join our China and Markets economists for a 20-minute discussion about near to long-term economic challenges, from zero-COVID disruptions to US-China decoupling. Register now.

6 May 2022
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Emerging Europe Economics Weekly

Hungary’s growing imbalances, Russian gas flows

Comments from Hungary's central bank this week suggest that policymakers are moving closer towards a joint tightening of monetary and fiscal policy to cool demand and narrow the twin deficits. Elsewhere, Russian industrial production and retail sales figures showed much smaller falls in March than had been expected, but we think large declines are likely in April and May. Finally, the risk of energy rationing surged this week after Gazprom halted gas supplies to Poland and Bulgaria. Poland looks in a relatively good position to deal with this but other countries, such as Bulgaria and Czechia, are not and any disruptions would cause deep(er) recessions this year.

Emerging Europe Economics Weekly

Russia’s crisis easing, Poland’s energy supply boom

Comments from Russian central bank governor Elvira Nabiullina this week underline the view that the most acute phase of Russia's crisis may have passed and that interest rates are likely to fall sharply in the coming months, but that a long-term re-structuring and a new growth model will now be needed. Meanwhile, Poland's industrial production figures for March beat expectations again and a lot of this strength reflects a questionable surge in power supply that may be overstating the strength of industry. But even so, there were encouraging details in the manufacturing figures that suggest industry should be able to hold up well this year despite the war in Ukraine.

Emerging Europe Economics Weekly

New policy support, CA deficits, Turkey FX conversion

Governments in Central and Eastern Europe stepped up support this week for firms and households against surging inflation, but we don't think they will prevent some economies from contracting in Q2. Meanwhile, current account deficits have blown out this year and will only deteriorate further due to high commodity prices and supply-chain disruptions. One country where the current account is looking concerning is Turkey and the central bank took steps this week to shore up its FX reserves. At the same time, policymakers are pushing their lira-isation strategy but this is likely to raise risks in the banking sector further down the line. We are sending this Weekly one day earlier than usual because our offices are closed for Good Friday on Friday, 15th April

Emerging Europe Economics Weekly

Energy sanctions ratchet up, Russia close to default?

This week’s announcement that the EU will ban the import of Russian coal from mid-August will not have a major impact on Russian export revenues, but it marks a clear shift in the EU’s aim to target Russia’s energy sector ahead of talks on a possible embargo on Russian oil imports next week. Meanwhile, the possibility of a Russian government default is now looking increasing likely following the US Treasury’s decision to restrict Russia’s central bank from using reserves held at US financial institutions. Some Russian corporates have also reported problems with payment so if the government does default, corporates may be next.

Emerging Europe Economics Weekly

Peace talks, Russia’s gas solution, Fidesz set for victory

Optimism about the prospect of an end to the war in Ukraine came and went this week and, given the complexity of the issues at stake, it is likely to be some time yet before a breakthrough in talks is achieved. Meanwhile, President Putin stepped up pressure on the West as he set today as the deadline for gas payment in rubles. While we expect gas to keep on flowing, it may simply strengthen Europe’s efforts to reduce its reliance on Russian energy. Finally, Hungarians go the polls on Sunday and a victory for the ruling Fidesz party seems likely. The most immediate tasks will be to rein in the budget deficit and tackle Hungary's growing macro imbalances.

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