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CBRT’s optimism, Central Europe to slow further

In its latest Inflation Report, Turkey’s central bank stuck to its forecast for inflation to fall back in 2020-21, but this rests on the farfetched assumption that a negative output gap will persist throughout this period. With inflation likely to surprise on the upside, we hold a non-consensus view that interest rates will be hiked later this year. Meanwhile, there have been tentative signs recently that the euro-zone economy has stabilised, reducing the threat to Central Europe of a continued deterioration in external demand. But that is unlikely to prevent GDP growth slowing further this year.

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