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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.
Joseph Marlow Assistant Economist
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Emerging Europe Data Response

Russia Activity Data (May)

The latest Russian data for May suggest that activity, having declined sharply after Western sanctions were imposed in March, has started to stabilise. Some sectors of manufacturing have benefited from a shift towards domestic production. On balance, the fall in Russian GDP this quarter looks like it will be in the order of 10% q/q, not the 15% q/q we had previously expected. EM Drop-In (Thurs, 7th July): Join our economists for their regular monthly briefing on the hot stories in EMs – and those that aren’t getting the attention they deserve. In this 20-minute session, topics will include the outlook for EM FX markets after the recent sell-offs. Register now.

29 June 2022

Emerging Europe Chart Book

Tightening cycles still have some way to go

Inflation has continued to beat expectations across Emerging Europe over the past month, reaching rates not seen in decades in most countries. It is now weighing more heavily on consumer confidence, and the surprise inflation releases for May prompted central banks to accelerate tightening cycles in a number of economies, including Czechia (125bp hike) and Hungary (185bp). Such large hikes are unlikely to be repeated but, with inflation not set to peak for at least a few more months, tightening cycles still have some way to go. The exceptions are Russia and Turkey. Falling inflation will give Russia’s central bank scope to cut its policy rate further and President Erdogan’s grip on Turkey’s central bank means that rate hikes to combat inflation of more than 70% y/y remain off the cards.

29 June 2022

Emerging Europe Data Response

Economic Sentiment Indicators (Jun.)

The EC’s Economic Sentiment Indicators for Central and Eastern Europe showed broad-based declines in sentiment across the region and across sectors in June to levels not seen in a year. Economic activity has generally held up well since the war in Ukraine started a few months ago, but the second half of this year is likely to be more challenging and we think economic recoveries will slow sharply.

29 June 2022

More from Joseph Marlow

Emerging Europe Economics Update

CNB steps up tightening, but NBP opts for a smaller hike

Central banks in Czechia and Poland caught investors by surprise today as the Czech central bank (CNB) unexpectedly re-accelerated the pace of its tightening cycle with a 75bp hike while Poland’s central bank (NBP) slowed the pace of tightening with a smaller-than-expected hike (also of 75bp). With inflation still the main concern we expect interest rates to rise to at least 7.00% in both countries 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.

5 May 2022

Emerging Europe Data Response

Czech GDP (Q1 2022)

The 0.7% q/q expansion of Czech GDP in Q1 was slightly stronger than expected, although it still marked a slowdown in growth and, in particular, there were signs of weakness at the end of the quarter. We think that spillovers from the war in Ukraine will weigh heavily on industry and cause the economy to contract in Q2.

29 April 2022

Emerging Europe Economics Update

Turkey’s current account deficit is a growing risk

Spillovers from the war in Ukraine are likely to cause Turkey’s current account deficit to widen to more than 4% of GDP this year. In the recent past, deficits of this scale have tended to precede sharp falls in Turkey’s currency.

25 April 2022
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