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Emerging Europe


Risk of tighter agricultural export restrictions growing

The recent tightening of export restrictions has been limiting the supply of staple agricultural commodities available to global markets and pushing up prices. In light of the ban on wheat exports from India, we’ve raised our forecast for the price of wheat from 800 US cents per bushel to 900 by end-2022.

23 May 2022

Q&A on Russia’s budget, deficit financing & default

In this Update, we answer a number of key questions on Russia’s public finances, including the likelihood of a sovereign default, the impact of higher energy prices and the collapse of the economy on the budget position, and how the government would be able to finance a budget deficit.

23 May 2022

Hungary tightening, ruble strength, Bulgaria support

Officials in Hungary sought this week to reassure investors that they will tackle inflation and mounting macro imbalances. Tighter policy is needed, which underpins our below-consensus growth forecasts. Elsewhere, the Russian ruble strengthened beyond 60/$ this week – its strongest level since 2018 – which, combined with the stabilising inflationary backdrop, will give the CBR the confidence to ease capital controls and cut interest rates further. Finally, Bulgaria announced measures to shield the economy from high inflation this week, but we doubt that it will be enough to prevent a recession.

20 May 2022
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Russia GDP (Q1 2022)

The 3.5% expansion in Russia’s GDP in Q1 is consistent with a small contraction in q/q terms, and this will almost certainly be followed by a steep fall in output in Q2 as the effects of Western sanctions bite hard. For 2022 as a whole, we’ve pencilled in a 12% contraction in Russia’s economy, which would be the steepest downturn since the 1990s.

Russia Consumer Prices (Apr.)

Russian inflation came in broadly as expected in April, rising from 16.7% y/y to a two-decade high of 17.8% y/y and it looks like further increases in the coming months will be modest. This will prompt the central bank to unwind its emergency interest rate hike further, with a 200bp rate cut next month. 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.

Gas supply to Europe to remain uncertain

News of force majeure on one of the pipelines in Ukraine bringing Russian natural gas to Europe just adds to our conviction that Europe is going to struggle to meet its gas needs over the next year. The heightened competition for gas imports suggests that prices will remain high at least until spring 2023. In view of the wider interest, we are also sending this Energy Update to clients of our Emerging Europe Service. Markets Drop-In (11th May, 10:00 EDT/15:00 BST): We’re discussing our Q2 Outlook reports and what they say about the potential performance of bonds, equities and FX rates as inflation peaks in a special 20-minute briefing on Wednesday. Register now.

Russia’s trade surplus soars as imports collapse

Russia has suspended the publication of monthly trade data, but figures from its trading partners show that import values plunged 45% m/m in March while exports rose slightly amid high commodity prices. This is likely to remain the case, pushing Russia’s trade surplus to an even greater record high this quarter. 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.

EU oil embargo to hit Russia’s oil exports hard

The EU proposal to end imports of Russian crude oil and petroleum products by the end of the year has long been in the works. If approved, we expect Russia’s oil exports to fall by around 20% this year, which in turn would keep oil prices over $100 per barrel. But unless natural gas prices plunge and/or there are secondary sanctions on Russian oil, this won’t cause major pain for Russia’s economy immediately. In view of the wider interest, we are also sending this Energy Update to clients of our Emerging Europe Service.

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