The conflict in Nagorno-Karabakh has opened up another schism between Turkey, the EU and Russia and there is a major risk that an escalation of tensions could trigger sharp falls in the lira and push the central bank into more aggressive monetary tightening. Meanwhile, the response by policymakers in Poland and the Czech Republic to the continued rise in new coronavirus cases is likely to be followed up by a further tightening of restrictions over the coming months. The economic recovery in the near-term is likely to be weaker than we previously thought.
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