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.
Liam Peach Emerging Markets Economist
Continue reading

More from Emerging Europe

Emerging Europe Data Response

Poland Activity Data (Dec.)

The latest activity data in Poland show that industry expanded strongly in Q4 but that the shine came off the retail sector amid falling consumer sentiment and surging inflation. We think that GDP expanded by around 6.8% y/y (1.1% q/q) in Q4 which would leave Poland as the best performing economy in the region, but that the recovery will slow a touch at the start of this year.

24 January 2022

Emerging Europe Economics Weekly

Ukrainian markets feel the heat, oil nearing $90pb

Ukraine's financial markets remained under pressure this week as investors appear to have priced in a more serious outcome regarding Russia-Ukraine tensions. A positive reaction to today's talks between the US and Russia has brought some relief but, even if a renewed conflict doesn't materialise, local markets are set to face a difficult few months. Meanwhile, oil prices closed in on $90pb this week and we've revised up our year-end Brent crude forecast to $70pb (from $60pb). This will help support Russia's budget and current account surpluses, but will add 0.2-0.3%-pts to inflation elsewhere in the region and cause current account balances to worsen.

21 January 2022

Emerging Europe Economic Outlook

Mounting headwinds to take the shine off the recovery

We expect regional GDP growth to come in below expectations this year as high inflation erodes households’ real incomes and policy becomes more restrictive. Despite this view on the growth outlook, we think that persistent capacity constraints will mean that inflation ultimately settles at a higher level than is currently appreciated. This feeds into our relatively hawkish interest rate forecasts, particularly in Russia, Poland and Czechia.

20 January 2022

More from Liam Peach

Emerging Europe Economics Update

More to Polish industry resilience than meets the eye

Poland’s industrial sector as a whole has shaken off widespread materials shortages in recent months, in part due to its more diversified sectoral make-up than the rest of CEE. But it also reflects the fruits of recent investments into new production capacity in key sectors of manufacturing, which we think will continue to help Poland’s economy outperform the rest of CEE in the new few years.

2 December 2021

Emerging Europe Data Response

Russia Activity Data (Oct.)

Russia’s economy made a mixed start to Q4 as industrial production recovered while retail sales growth slowed sharply. With the country’s severe virus outbreak and low vaccine coverage set to keep virus restrictions tight for some time, we think the economy will lose steam in the coming months.

1 December 2021

Emerging Europe Data Response

Manufacturing PMIs (Nov.)

The manufacturing PMIs in November were surprisingly strong across the board, but with supply chains stretched and the emergence of the Omicron variant clouding the outlook, there are reasons to be sceptical that this strength will be sustained in the coming months.

1 December 2021
↑ Back to top