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Further signs of manufacturing weakness Manufacturing PMIs for June showed further weakness across the region with the exception of Russia, which seems to have benefitted from a shift from imports toward domestic production. There were some encouraging …
1st July 2022
Ukrainian refugees have boosted labour forces and consumer spending across Central and Eastern Europe (CEE) since the outbreak of the war, but this could prove short-lived if the conflict remains concentrated in Eastern Ukraine and more refugees return …
30th June 2022
Clearer signs that the economy has stabilised The latest Russian data for May suggest that activity, having declined sharply after Western sanctions were imposed in March, has started to stabilise. Some sectors of manufacturing have benefited from a shift …
29th June 2022
Inflation has continued to beat expectations across Emerging Europe over the past month, reaching rates not seen in decades in most countries. It is now weighing more heavily on consumer confidence, and the surprise inflation releases for May prompted …
Sharp fall in sentiment as recovery starts to slow The EC’s Economic Sentiment Indicators for Central and Eastern Europe showed broad-based declines in sentiment across the region and across sectors in June to levels not seen in a year. Economic activity …
The G7 proposal to impose a cap on the price of Russian oil and gas would introduce new supply-side risks by potentially disrupting Russian energy supplies. This could push global energy prices up further, but for now we still see Brent crude prices …
28th June 2022
Hungary’s central bank (MNB) stepped up the pace of tightening today with a much larger-than-expected 185bp increase in its base rate, to 7.75%, and the hawkish communications underline the view that further large rate hikes are likely to be delivered …
Russia’s government has now reportedly defaulted on its foreign-currency denominated debt for the first time since 1918, but this is a largely symbolic event that is unlikely to have an additional macroeconomic impact. Sanctions have already done the …
27th June 2022
Israel and Bulgaria heading for elections (again!) Governments in Israel and Bulgaria collapsed this week, although the threat to Bulgaria’s economy is probably greater as political instability puts EU fund inflows and the ability to secure gas supplies …
24th June 2022
High inflation, falls in the lira and aggressive monetary tightening elsewhere are clearly not enough to persuade Turkey’s central bank to lift interest rates, as it left its policy rate at 14.00% today. Disorderly falls in the lira are a major risk, …
23rd June 2022
Central and Eastern European economies are experiencing their worst bout of inflation since the late-1990s as surging food and energy prices have added to strong core price pressures across a broad range of goods and services. Monetary tightening cycles …
20th June 2022
Assessing the risks from a more hawkish US Fed The 75bp interest rate hike by the US Fed this week and expectations for further large hikes in the coming months have caused turmoil in global markets and will have ripple effects across Emerging Europe. We …
17th June 2022
The recent falls in the Turkish lira have led to increased speculation that, with the CBRT showing no sign of willingness to raise interest rates, policymakers will be forced to turn to capital controls to prevent sharp and disorderly moves in the …
16th June 2022
Israel’s labour market has tightened significantly in recent months and while there is so far little sign of a burst of wage pressure coming through, this is likely to be in the pipeline and feed through into stronger core inflation next year. Alongside a …
14th June 2022
Economy’s robust performance continues Turkey’s activity figures for April suggest that the economy has held up well since last year’s currency crisis, but robust activity has added to inflation pressures and contributed to the widening of the current …
13th June 2022
Turkey: anything but rate hikes The Turkish lira remained under pressure this week and officials unveiled on Thursday a raft of measures aimed at tackling inflation and bolstering the currency. The Treasury revealed that it will issue lira-denominated …
10th June 2022
The Russian central bank (CBR) delivered a 150bp interest rate cut to 9.50% today as its focus continued to shift away from inflation risks towards supporting the economy. We think further reductions are likely to be more gradual, with rates ending this …
Signs that inflation has already peaked The sharp fall in Russian inflation in May to 17.1% y/y suggests that inflation may have already peaked and price pressures are likely to ease further in the coming months. This will give the central bank room to …
8th June 2022
The Turkish lira has continued to slide and the current backdrop is eerily similar to that which preceded previous currency crises. Sharp and disorderly falls in the lira over the coming weeks are now a real risk. The lira slipped beyond 17/$ this morning …
Sanctions take their toll as activity falls sharply in April The April activity data for Russia released today show that the imposition of Western sanctions has caused a sharp fall in oil and gas production, a plunge in motor vehicles output and resulted …
1st June 2022
EU oil embargo not a disaster for Russia After weeks of intense negotiation, the EU eventually agreed to impose an embargo on seaborne imports of Russian crude and petroleum products that will likely result in a 90% fall in Russian oil exports to the EU …
Weak external demand and war in Ukraine take their toll Manufacturing PMIs for May showed that weaker external demand weighed on export orders in Emerging Europe, and that spillovers from the war in Ukraine hit output. There were some signs of improvement …
GDP across Central Europe expanded strongly in Q1 and the latest figures for March and April suggest that activity has remained resilient since the war in Ukraine started. Russia’s economy has not (yet) fallen off a cliff as had been expected. Industry in …
31st May 2022
Resilient Q1, but economy to struggle over rest of 2022 Turkey’s economy performed better than expected in Q1, with GDP rising by 1.2% q/q, as the boost to net trade from the lira’s collapse late last year more than offset the blow to household spending …
Sentiment a mixed bag in May The EC’s Economic Sentiment Indicators for Central and Eastern Europe were a mixed bag in May, but there were some encouraging signs that industrial sentiment has started to improve and that price pressures may be nearing a …
30th May 2022
Russia and default (yes, we’ve been here before!) A Russian sovereign default moved a step closer this week after the US government decided not to extend a waiver that allowed US investors to receive debt payments from Russia’s government. We looked at …
27th May 2022
Despite the backdrop of inflation at 70% and the lira falling by falling by 10% against the dollar this month, Turkey’s central bank left interest rates on hold at 14.00% today. So long as President Erdogan is in power, rate hikes will remain off the …
26th May 2022
Exports from Central and Eastern Europe (CEE) face growing headwinds, and this feeds into our below consensus view on economic growth in the region. The larger economies in CEE such as Poland and Hungary are particularly exposed to slower growth in the …
25th May 2022
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 …
23rd May 2022
The Bank of Israel (BOI) hiked its policy by a larger-than-expected 40bp today, to 0.75%, and the backdrop of a strong economy, tight labour market and mounting inflation pressures means that we think it will deliver further hikes at its upcoming …
Soft start to Q2 April’s activity data for Poland suggest that the economy lost some steam at the start of Q2 and the effects of the war in Ukraine will remain a key headwind over the coming months. That said, we think Poland will avoid a contraction and …
Hungary: policymakers seek to fight imbalances 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. In a …
20th May 2022
The war in Ukraine will exacerbate two key macro risks in Central and Eastern Europe (CEE) this year: wage-price spirals (particularly in Poland) and widening current account deficits (particularly in Hungary and Romania). Monetary policy will do most of …
19th May 2022
The Turkish lira has come under renewed pressure in recent weeks but interest rate hikes to shore up the currency are off the cards. Instead, further sharp and disorderly falls would most likely be met by formal capital controls and more strident …
Q1 resilience to be followed by steep downturn in Q2 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 …
18th May 2022
Overheating in Q1 Q1 GDP figures for Central and Eastern Europe smashed expectations in Poland, Romania and Hungary and suggest that their economies were running hot at the start of the year. The war in Ukraine will dampen activity in Q2, but demand is …
17th May 2022
Q1 contraction not a sign of weakness The 1.6% q/q annualised contraction in Q1 GDP in Israel was weaker than analysts expected, but it was more or less in line with our forecast and doesn’t change the bigger picture that Israel’s economy is operating in …
16th May 2022
Monthly price increases slow sharply as ruble appreciates 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 …
13th May 2022
Gas supply concerns remain The threat of gas supplies from Russia being cut off continued to rise this week. First, Ukrainian pipeline operator GTSOU suspended the flow of gas through the Sokhranivka transit point, which could reduce gas supplies to …
Better-than-expected Q1, but economy faces strong headwinds Turkey’s activity data for March suggest that the economy held up better than expected in Q1 as a weak lira appears to have supported industry, while policies to preserve households’ purchasing …
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 …
11th May 2022
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 …
Industrial production in Central Europe performed much better than expected in March given the sharp fall in German production. We still think industry will weaken in Q2 as supply chain disruptions bite, but we’re hopeful that the major economies in …
10th May 2022
Making sense of the Russian ruble’s rally While the Russian ruble has weakened against the dollar today, it has been on a remarkable rally in the past week or so – it is now at a two-year high of 66/$ and is twice as valuable against the dollar compared …
6th May 2022
Central banks in Czechia and Poland caught investors by surprise today as the Czech central bank (CNB) unexpectedly re-accelerated the pace of its tightening cycle with a 75bp hike while Poland’s central bank (NBP) slowed the pace of tightening with a …
5th May 2022
Poland’s government has shown no signs of meeting President Putin’s demand to get gas flows restored, but we think the economy is relatively well placed to deal with a loss of Russian supplies. As things stand, we do not expect any energy rationing and we …
We think that the surprising stability of the Turkish lira so far this year will not last much longer and we forecast it to weaken against the dollar over the coming months, from ~14.8/$ now to 18/$ by end-2022. This would be a fall of around 20% and, …
Inflation closes in on 2002 peak Turkey’s headline inflation rate recorded another sharp increase to 70.0% y/y in April and there’s a strong chance that it moves beyond its peak in the early 2000s in the coming months. Despite this inflation backdrop, a …
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 …
4th May 2022
Hungary’s imbalances in the spotlight Hungary’s central bank this week gave its most vocal assessment yet about the risks posed by growing macro imbalances. Policymakers now seem to be moving closer towards a joint tightening of monetary and fiscal policy …
29th April 2022
