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A mixed performance in Q3, but recessions on the horizon Q3 GDP figures for Central and Eastern Europe were generally a bit better than we had expected, but pockets of weakness were beginning to emerge as the Czech and Hungarian economies both …
15th November 2022
Romania’s current account deficit, which is among the largest in the EM world, has continued to widen this year and now exceeds 9% of GDP. It is reassuring that much of the deficit is currently being financed by relatively stable forms of capital inflows. …
14th November 2022
Sovereigns tap the dollar bond market Governments in Turkey and Poland made a splash this week as they announced rare dollar bond issues. Turkey appears to be taking advantage of low credit spreads but the decision in Poland follows recent concern among …
11th November 2022
A slowdown in Q3 Turkish activity data for September show that industrial production has come under more pressure while retail sales have continued their remarkable resilience in the face of high inflation. On balance, we think that GDP growth slowed from …
Doves take control at the NBP Poland’s central bank (NBP) announced (very late by its usual standards) that it had left interest rates unchanged at 6.75% at today’s MPC meeting, confirming previous comments from policymakers that they believe the current …
9th November 2022
Inflation pressures remain soft Inflation in Russia fell more sharply than expected in October, to 12.6% y/y, but this won’t be enough to prompt the central bank to restart its easing cycle as policymakers are concerned about inflation risks in the …
The Polish central bank’s dovish monetary policy stance is becoming increasingly at odds with the severity of inflation pressures and this reinforces our long-held view that inflation won’t return to the central bank’s target until 2025 at the earliest. …
8th November 2022
NBR’s tightening cycle nearing an end The National Bank of Romania (NBR) slowed down the pace of its tightening cycle today, with a 50bp interest rate hike to 6.75%. We think that the tightening cycle is nearing an end, but that interest rates will have …
NBP divided on the length of its tightening cycle The divergent views among policymakers at the National Bank of Poland (NBP) make it increasingly difficult to tell whether the central bank’s tightening cycle is coming to an end. We expect the NBP to …
4th November 2022
Dovish CNB unlikely to tighten further The Czech National Bank (CNB) left its policy rate on hold, at 7.00%, for a third consecutive meeting today. With inflation nearing a peak and the economy now contracting, we think rates will be left unchanged over …
3rd November 2022
The surge in energy prices this year has led to a sharp widening in Hungary’s current account deficit and increased its dependence on foreign capital inflows. While the central bank (MNB) seems to have put a floor under the currency recently, it remains …
Inflation pressures show little sign of easing Inflation in Turkey rose to 85.5% y/y in October due to a broad-based strengthening of price pressures. Even so, the central bank will remain under pressure from President Erdogan for looser policy and …
Economy lacking momentum There were broad-based falls in Russian industrial production and retail sales in September. The economy may have narrowly avoided another q/q contraction in GDP in Q3 as a whole, but there’s clearly no momentum in the economy …
2nd November 2022
Israel’s economy has been one of the fastest growing globally since the pandemic but there are a number of headwinds that will weigh on activity over the coming quarters. We expect a period of below-potential growth out to 2024. The likely victory for …
The 0.4% q/q contraction in Czech GDP in Q3 provides the first clear sign that the economy as a whole is buckling. We think the economy is now in a recession which will last until early next year. Meanwhile, the manufacturing PMIs for October underscore …
1st November 2022
Fatigue sets in as Israelis head to the polls Israelis vote in elections next week and while polls point to a possible return for Benjamin Netanyahu, another inconclusive result remains highly likely. The election has limited near-term implications for …
28th October 2022
Russian central bank governor Elvira Nabiullina’s post-meeting press conference reinforced the message that policymakers are increasingly concerned about pro-inflationary risks, including those stemming from the recent mobilisation of reservists. That …
CBR brings its easing cycle to a halt Russia’s central bank left interest rates on hold at 7.00% today and highlighted the pro-inflationary risks stemming from the recent mobilisation of reservists. That said, we think this is likely to mark a pause in …
Sentiment remains depressed as headwinds mount The EC’s Economic Sentiment Indicators for Central and Eastern Europe were a mixed bag in October, but the big picture is that sentiment in most countries is very depressed which supports our view that the …
Current account deficits have widened to alarming levels in Poland, Hungary, Turkey and, most of all, Romania, in recent months which has contributed to the downward pressure on currencies this year – the Turkish lira, Hungarian forint and Polish zloty …
26th October 2022
MNB to keep relying on unconventional tools to support the forint Hungary’s central bank (MNB) left its base rate on hold today and we expect that the central bank will continue to use its new “market stabilisation tools” to keep short-term interest rates …
25th October 2022
The continued decline in European natural gas prices this week is a positive development for economies in Central and Eastern Europe (CEE), but the energy crisis will not go away anytime soon and we still expect the region to enter recession this winter. …
21st October 2022
Recession just around the corner September’s industrial production and retail sales figures out of Poland showed that activity continued to recover last month. Even so, it may be touch-and-go as to whether Poland’s economy was already in a technical …
Policymakers in Turkey have doubled down on their new economic model of “lira-isation” by pursuing more extreme de-dollarisation policies in recent months. These appear to be having an impact in terms of stemming lira depreciation. But the central bank …
20th October 2022
CBRT inches further into the unknown Turkey’s central bank stepped up its easing cycle with a 150bp interest rate cut (to 10.50%) today but hinted that the easing cycle will end next month. Even so, policymaking is stretching further into the unknown and …
Inflation & external pressures force the MNB’s hand The surprise decision by Hungary’s central bank (MNB) to tighten monetary policy further today underscores that the economy is facing much stronger inflation and external pressures than its regional …
14th October 2022
Overview – Emerging European economies are facing a difficult winter due to the energy crisis as well as headwinds from weakening demand for exports and tightening external financing conditions. We expect almost all economies in the region to experience a …
13th October 2022
A slowdown in Q3 The latest activity data show that retail sales and industrial production bounced back in Turkey in August, but this follows a period of softness and industry is on track for a large quarterly contraction in Q3 as a whole. We think GDP …
12th October 2022
Central banks have the tools to deal with liquidity crises arising from rising interest rates and falling asset prices. Instead, the bigger threat is that higher interest rates produce large and simultaneous falls in asset prices that threaten the …
11th October 2022
Returning to m/m inflation Inflation continued to fall in Russia in September, to 13.7% y/y, but at a much slower rate than in previous months. The recent period of strong disinflation is coming to an end and the central bank is likely to scale back the …
7th October 2022
Russia under more strain after Ukraine annexation The macroeconomic fallout from Russia’s call-up of military reservists and its formal annexation of Ukrainian territory has continued to mount, resulting in tighter Western sanctions, a mass fleeing of …
NBP now looking through the inflation figures Poland’s central bank (NBP) left interest rates unchanged at 6.75% today, which is a big surprise after data released last week showed a larger-than-expected rise in inflation in September. The accompanying …
5th October 2022
NBR still has a bit more work to do The National Bank of Romania (NBR) hiked its policy rate by 75bp, to 6.25%, at its meeting today. The tightening cycle is likely to slow down but we still expect rates to reach 7.00%, which is slightly higher than most …
The Bank of Israel delivered another 75bp interest rate hike to 2.75% today and while the accompanying communications were not particularly hawkish, it’s clear that the tightening cycle is far from over. We’ve pencilled in two more hikes in this cycle, …
3rd October 2022
Industry remains in contraction territory Manufacturing PMIs for September were a mixed bag, but continued to paint a weak picture of industrial activity in Turkey, Czechia and Poland in Q3. In contrast, the downturn in Russian industry appears to have …
Central banks in Central Europe are attempting to draw their tightening cycles to a close, but with inflation very high and currencies under pressure, there is a clear risk that this could be premature. This week Hungary’s central bank sprung a surprise …
30th September 2022
Higher interest rates are already having an impact in CEE and a large part of the tightening of monetary conditions has yet to feed through. This will add to the headwinds facing growth in the coming quarters. Central banks have raised interest rates by …
29th September 2022
Rate cuts on the horizon The Czech National Bank (CNB) left its policy rate on hold, at 7.00%, for a second consecutive meeting today. With inflation unlikely to rise much further and the economy on the verge of recession, we think interest rates will …
Further fall in sentiment points to regional recession The EC’s Economic Sentiment Indicators for September out of Central and Eastern Europe revealed a further decline and suggest to us that the region as a whole is at the start of a recession. …
Economy bottoming out, but no recovery in sight Russia’s industrial production and retail sales figures for August suggest that the downturn has bottomed out, but activity is only levelling off and a sustained recovery looks some way off. The strong 1.2% …
28th September 2022
After raising its base rate by a larger-than-expected 125bp, to 13.00%, Hungary’s central bank (MNB) announced today that it has now ended its rate hiking cycle and we now forecast the base rate to be left on hold over the coming year. Even so, with …
27th September 2022
Russia ups the ante in Ukraine The announcement by President Putin to “partially mobilise” Russia’s military reservists this week could prolong the war in Ukraine. From a macro perspective, the main implications for Russia’s economy could come through …
23rd September 2022
Inflation now seems to be approaching a peak across the region. Commodity prices have fallen, supply constraints have eased, pipeline price pressures have softened and firms’ selling price expectations have declined across CEE. CPI inflation has already …
22nd September 2022
CBRT bows to political pressure with another 100bp cut Turkey’s central bank continued to bow to President Erdogan’s wishes today as it delivered another 100bp interest rate cut, to 12.00%, even though inflation breached 80% y/y in August. Further cuts …
Signs of recovery after difficult Q2 The industrial production and retail sales figures for Poland for August show that economic activity has started to recover after suffering contractions in Q2. But this recovery is unlikely to be sustained heading into …
21st September 2022
August CPI data reinforce monetary policy divide The latest batch of inflation data out of Central and Eastern Europe (CEE) provides support to our view that tightening cycles in Czechia and Poland are at an end, but that Hungary’s central bank (MNB) …
16th September 2022
Easing cycle entering a slower phase The decision by Russia’s central bank to cut the policy rate by a smaller 50bp, to 7.50%, confirms that, having already lowered rates sharply since April, the easing cycle is entering a slower phase. The decision was …
Fiscal support to protect households and businesses from sky-high energy prices generally amounts to around 2-3% of GDP across Central and Eastern Europe (CEE). This will cushion, rather than fully offset, the hit to real economic activity from the …
14th September 2022
Signs of softening emerging Turkey’s activity figures for July showed m/m declines in both industrial production and retail sales and suggest that the period of strong growth during the summer may be coming to an end. And with President Erdogan pressuring …
13th September 2022
In this Update, we analyse the impact of surging energy prices in Europe and show that the Central and Eastern European (CEE) economies are the most vulnerable. The share of household disposable income spent on energy could double to more than 10% and a …
12th September 2022
