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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
Inflation showing no sign of turning a corner Inflation continued to fall sharply in Russia in August, to 14.3% y/y, and there’s little standing in the way of another interest rate cut by the central bank next week. We expect a 50bp reduction to 7.50%. …
9th September 2022
CEE and the Nord Stream 1 gas shut-off The indefinite closure of the Nord Stream 1 gas pipeline by Russia late last Friday has added to the risks around energy supply in Central and Eastern Europe (CEE) and presents downside risks to our GDP growth …
The National Bank of Poland (NBP) slowed down the pace of its tightening cycle again today with a 25bp rate hike to 6.75%. There was no new guidance in the communications in terms of the central bank’s next move, but with policymakers seemingly more …
7th September 2022
NBP brings its tightening cycle to a close The National Bank of Poland (NBP) slowed down the pace of its tightening cycle again today with a 25bp interest rate hike to 6.75%, and with policymakers seemingly more concerned about the deteriorating economic …
Inflation surpasses 80% milestone Inflation hit 80.2% y/y in Turkey in August, breaching 80% for the first time since 1998. Even so, the central bank is likely to remain beholden to President Erdogan’s wishes for looser policy and it seems that further …
5th September 2022
Q2 GDP figures show a mixed performance across the region, with economies most exposed to the war in Ukraine hit hard while the largest economies in the region generally held up well. But given the mounting economic headwinds, there are plenty of reasons …
2nd September 2022
Mixed bag, but contractions in industry likely in Q3 Manufacturing PMIs for August were a mixed bag, with further signs that Russian industry is recovering while PMIs in Turkey, Poland and Czechia remained weak and are consistent with contractions in …
1st September 2022
Early signs of economy stabilising Russia’s industrial production and retail sales figures for July were stronger than expected and provide the first tangible evidence that the downturn in the economy is bottoming out. Industrial production posted an …
31st August 2022
Resilience so far, but much tougher times ahead Economies across the region were generally resilient in Q2 despite tightening financial conditions and the war in Ukraine. Russia’s downturn was milder than expected as it was able to re-orientate trade to …
Strong growth adds to inflation and external risks Turkey’s economy posted another robust quarter of growth in Q2, with GDP rising by 2.1% q/q, as stronger consumption and exports more than offset weaker investment. But strong growth is merely adding to …
MNB firmly focused on inflation and the forint Hungary’s central bank (MNB) continued with its aggressive tightening cycle today as it raised its base rate by another 100bp, to 11.75%. It’s clear that the MNB is struggling to contain very strong and …
30th August 2022
Sentiment falls again as growth momentum evaporates The EC’s Economic Sentiment Indicators for Central and Eastern Europe for August continued the trend in recent months of very weak data releases for the region and point to a sharp slowdown in GDP growth …
Governments step up support as gas prices soar Europe’s gas crisis deepened this week, with gas and electricity prices surging further into the stratosphere and governments stepping up policy support and shoring up energy supplies ahead of winter. The …
26th August 2022
Russia’s squeeze on the gas market helped it to generate $50bn (6% of GDP) in total gas exports in the first half of this year, 2-3 times more than normal. Russia’s balance of payments is in such a strong position that, if oil prices and oil exports …
25th August 2022
The Bank of Israel stepped up its tightening cycle with a 75bp interest rate hike, to 2.00%, today as it became more concerned about the strength of inflation. Our previously-hawkish view for interest rates to reach 3.0% now looks timid and we think a …
22nd August 2022
Stabilisation in July, but strong rebound unlikely in the months ahead July’s industrial production, retail sales and construction figures for Poland showed a stabilisation in activity after the surprise 2.3% q/q fall in GDP in Q2. But we expect the …
Turkey doubles down on unorthodoxy The surprise interest rate cut by Turkey’s central bank this week, despite inflation reaching close to 80% y/y in July, threatens to sow the seeds of the next currency crisis. After all, Turkey’s external position is …
19th August 2022
The war in Ukraine is dragging on, but there is now growing attention on the country’s eventual reconstruction. We think the government’s target of $750bn of total funding is unlikely to be met ($300-400bn seems more realistic). The primary focus of the …
Turkey’s central bank stepped up its fight against economic orthodoxy by cutting its one-week repo rate by 100bp, to 13.00%, despite the backdrop of inflation at 80% and an extremely poor external position. This latest move could prove to be the trigger …
18th August 2022
A mixed performance, with Poland getting the wrong headlines GDP in Hungary and Romania continued to expand strongly in Q2 by 1-2% q/q, but the Czech and Slovakian economies barely grew at all and there was a shocking 2.3% q/q contraction in Poland. …
17th August 2022
Economy comes roaring back The stronger-than-expected 6.8% q/q annualised expansion in Israel GDP in Q2 confirms that the Q1 contraction was just a blip. Economic activity remains strong and alongside the red-hot inflation figures for July, the risks are …
16th August 2022
Sanctions take their toll with historic fall in GDP Russian GDP contracted by 4% y/y in Q2, consistent with a fall of 6% in seasonally-adjusted q/q terms – a much better performance than analysts had expected and than had seemed likely a few months ago. …
12th August 2022
Hungary’s fiscal adjustment in full swing Hungary’s government has tightened the fiscal purse strings much more quickly than had looked likely since April’s election. This is positive as far as Hungary’s macro imbalances are concerned. But it is bad for …
Growth remained strong in Q2 Turkey’s activity figures for June painted a mixed picture, with industrial production continuing to post solid growth but retail sales suffering a fresh knock. The bigger picture, however, is that the economy appears to have …
Inflation pressures nowhere to be seen Russia’s month-on-month deflation deepened in July as consumer prices fell by a larger-than-expected 0.4% m/m (in y/y terms, the headline rate eased to 15.1%). The disinflationary impact of the strong ruble is likely …
10th August 2022
EU funds will provide a key boost to economies in Central and Eastern Europe (CEE) in the coming years as the region navigates a challenging macro environment and slowing global growth. Disputes with the European Commission over the rule of law in Hungary …
With Russia tightening its squeeze on supply of gas to Europe, governments are turning their attention to other major gas exporters such as Qatar to try to fill the gap. But Qatar’s gas sector is already operating close to capacity and, while the North …
9th August 2022
The tide is turning on monetary policy in CEE The decision by the Czech central bank to keep its policy rate on hold this week, while Romania’s hiked rates, is representative of a growing divergence between central banks in the region. Poland’s central …
5th August 2022
