Emerging Europe


Virus outbreaks diverge, but Omicron a renewed risk

COVID-19 outbreaks in Central and Eastern Europe have diverged in the past month and that may continue in December, but the emergence of the potentially highly-transmissible Omicron variant could replace Delta as the dominant strain and result in severe virus waves across the region. The recent experience is that there is a high bar for economically-damaging containment measures. But Omicron could change that if health systems come under increased strain, prompting a renewed downturn in activity. While our baseline view is that this won’t happen, renewed virus outbreaks – coming alongside other headwinds in the form of supply chain disruptions and surging inflation – means that the pace of growth is likely to slow sharply in the coming months.

30 November 2021

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

Turmoil in Turkey, MNB delivers, COVID divergence

It's been a turbulent week for Turkey, with the lira falling by around 11% against the dollar and we've looked extensively at the key implications for the economy and financial system. We'll be hosting a drop-in session on Tuesday to answer any key questions. (Sign up here.) Meanwhile, Hungary's central bank stepped up to the plate with a 70bp hike to its one-week deposit rate this week and further large increases are likely to push interest rates to 4% next year. Finally, there are some encouraging signs that new COVID-19 cases are starting to fall in parts of Eastern Europe, but cases have surged in Central Europe and tightening virus restrictions will sap recoveries of momentum.

19 November 2021
More Publications

Central & Eastern Europe GDP (Q3 2021)

The Q3 GDP data for Central and Eastern Europe (CEE) generally undershot expectations and suggest that economies entered Q4 with a clear loss of momentum. With supply disruptions set to persist and some COVID-19 restrictions likely to be reintroduced, growth is likely to slow further in the near term.

CEE inflation worries mount, Turkish lira closing in on 10

Inflation data out of Central and Eastern Europe this week provided for ugly viewing and with headline rates likely to rise further above central bank's targets in the coming months, this will keep the onus on policymakers to raise interest rates aggressively. Meanwhile, it's been another awful week for the Turkish lira which is closing on the psychologically important level of 10/$. Worries about domestic economic policymaking are growing and will continue to do so next week if the central bank delivers another large interest rate cut, as we expect.

Five points on the latest virus developments in EMs

The COVID-19 situation in many EMs has improved markedly over the past month or so as new infections have fallen sharply and vaccine rollouts have gathered pace. That said, the recent surge in virus cases in Emerging Europe serves as reminder that the risk of renewed outbreaks lingers, particularly where vaccine coverage is low. Countries in Sub-Saharan Africa still look particularly vulnerable on this front.

Virus outbreaks shine spotlight on vaccine hesitancy

The surge in COVID-19 cases and deaths in Eastern Europe has prompted the re-imposition of restrictions and it looks like measures will be stepped up, weighing on recoveries in Q4. Tight restrictions may not remain in place for long across Central Europe, but vaccine hesitancy has held back rollouts in the east and the risk in low-vaccine coverage countries such as Russia, Romania, Bulgaria and Ukraine is that containment measures need to stay tight for a prolonged period to suppress outbreaks.

Central & Eastern Europe GDP (Q2 2021)

The Q2 GDP data for Central and Eastern Europe revealed that the regional recovery gathered pace last quarter as economies reopened following virus waves in Q1. We expect the recovery to remain strong in the second half of this year, although low vaccine coverage clouds the outlook in some economies.

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