Romania’s fiscal risks, Israel’s 4th wave, CBRT pressure

Romania's new finance minister has a tough job ahead to keep the public finances on a sustainable path, especially as the PM is seeking to raise spending. Elsewhere, Israel's fourth virus wave has gone from bad to worse and there are now clear signs that this has taken its toll on consumer confidence. The central bank is likely to flag the downside risks to the outlook at its meeting on Monday. Finally, the minutes to the latest Turkish central bank decision suggest that policymakers are rowing back on previous commitments to avoid raising interest rates in the face of high inflation.
Liam Peach Emerging Markets Economist
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Emerging Europe Data Response

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Emerging Europe Data Response

Economic Sentiment Indicators (Nov.)

The EC’s Economic Sentiment Indicators for November showed a broad-based rise in industrial sentiment, but services sentiment softened further. With restrictions on activity being re-imposed amid surging virus cases and concern over the new ‘Omicron’ COVID-19 variant, the regional recovery is likely to slow in the coming months.

29 November 2021

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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.
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Polish industrial production continued to expand at a solid pace in July while retail sales fell as the re-opening of the economy shifted spending away from goods. The big picture is that the economy generally looks strong and this will further raise expectations for the start of the tightening cycle in November.

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The spread of the highly transmissible Delta variant has driven a sharp rise in virus cases, hospitalisations and deaths in Israel this month. Evidence of waning vaccine efficacy prompted the government to roll out third booster jabs at the start of August and these will probably become the norm in most countries. The good news is that there is preliminary evidence to suggest that the third booster jab is effective against infection and the government has been able to stick to relatively light-touch social distancing measures.

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Emerging Europe Data Response

Israel GDP (Q2 2021)

The larger-than-expected 15.4% annualised expansion in Israeli GDP in Q2 took the economy to more than 3% above its pre-pandemic level. While we expect growth to slow markedly in Q3 as the re-opening boost fades, Israel’s central bank will be comforted by the strength of the recovery and we think it will continue to signal the phasing out of some of its emergency support measures over the rest of the year.

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