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Russia’s central bank (CBR) cut its policy rate by another 300bp to 14.0% today and the communications suggest that the CBR is now more focused on boosting credit growth than it has been in the past. This shift in the CBR’s policy framework is likely to …
29th April 2022
Slowdown in Q1, contraction likely in Q2 The 0.7% q/q expansion of Czech GDP in Q1 was slightly stronger than expected, although it still marked a slowdown in growth and, in particular, there were signs of weakness at the end of the quarter. We think that …
Surging commodity prices have pushed up inflation across the region and we expect inflation to hit fresh multi-year highs in the coming months. A loss of Russian gas supplies should not lead to rationing in Poland, but it will have a big impact in …
28th April 2022
Surprising resilience in March, but deeper downturn likely in Q2 The latest activity data for Russia beat expectations in March and suggest that the economy entered a softer downturn than had been expected. We have reservations about the accuracy of the …
27th April 2022
Russia’s decision to suspend gas deliveries to Poland and Bulgaria from today because of a payments dispute will only strengthen the EU’s resolve to end its dependency on Russian gas, keeping gas prices historically high for months to come. The move also …
Spillovers from the war in Ukraine are likely to cause Turkey’s current account deficit to widen to more than 4% of GDP this year. In the recent past, deficits of this scale have tended to precede sharp falls in Turkey’s currency. Turkey’s current account …
25th April 2022
Russia: crisis easing, but challenges await Comments from Elvira Nabiullina this week during her appearance in the State Duma to be reappointed as CBR governor for another five-year term underline the view that the most acute phase of Russia’s economic …
22nd April 2022
Solid expansion in Q1, but growth to soften this quarter Industrial production and retail sales figures in Poland remained incredibly strong in March and point to a solid expansion in Q1. A lot of this strength is unlikely to last as the effects of the …
Overview – The Russian economy will collapse this year and we expect spillovers from the war in Ukraine to cause a recession in many of the smaller countries in the region, particularly Bulgaria and the Baltic States. Loose fiscal policy and strong labour …
20th April 2022
Fiscal support may not prevent Q2 contraction Governments stepped up policy support this week to protect against the surging cost of living and, while the measures should help to shield households and firms from surging inflation, we don’t think they will …
14th April 2022
Industry and retail sales on diverging paths Turkey’s activity data for February point to a growing divergence between industry, which is being supported by a weak lira, and retail sales which continues to struggle in face of the surge in inflation. On …
12th April 2022
The Bank of Israel kick-started its tightening cycle today with a 25bp interest rate hike to 0.35% and we think it will deliver further hikes at its upcoming meetings, taking rates to around 2.00% in the first half of next year. This is currently more …
11th April 2022
Largest monthly increase since the late-1990s The 7.6% m/m rise in consumer prices in Russia in March was the highest monthly increase since the 1990s. It pushed the headline inflation rate up to 16.7% y/y and we think it will rise towards 23% y/y in the …
8th April 2022
Russia hit with new energy sanctions This week’s announcement that the EU will ban the import of Russian coal from mid-August will not have a major impact on Russian export revenues, but it marks a clear shift in the EU’s aim to target Russia’s energy …
Timely indicators suggest that Russian manufacturing contracted by around 20% y/y in March and that consumer spending fell by 10% y/y at the start of April. Russia’s economic downturn looks set to deepen in the coming months as the effects of sanctions, …
7th April 2022
The National Bank of Poland (NBP) unexpectedly delivered its largest interest rate hike in 22 years today (100bp, to 4.50%) to get on top of the deteriorating inflation outlook and we think there’s little argument against further hikes to come. We now …
6th April 2022
Inflation leaps above 60% Turkey’s headline inflation rate recorded another sharp rise to reach 61.1% y/y in March and it is likely to rise a bit further over the coming months. But there is still little sign that the central bank and, crucially, …
4th April 2022
Hopes of a peace deal fall flat Optimism about the prospect of an end to the war in Ukraine came and went this week. Hopes were raised after negotiators met in Istanbul on Tuesday and Russia said that it would significantly pare back military operations …
1st April 2022
War in Ukraine takes its first toll on the region’s industry Manufacturing PMIs declined across the region in March amid the war in Ukraine, and with supply chain disruptions and price pressures set to intensify, industry looks set to contract in the …
The Czech National Bank (CNB) slowed the pace of its tightening cycle for the third consecutive month today with a 50bp rate hike to 5.00%, but hawkish communications after the meeting suggest that the CNB is not finished yet. We now expect a 50bp hike at …
31st March 2022
Fidesz is looking the most likely to retain power in Hungary’s election this weekend, which will pave the way for four more years of tensions with the EU over the rule of law and raise the likelihood that EU fund inflows are withheld. From a macro …
The war in Ukraine has devasted its economy, while Western sanctions are likely to push Russia into a deep contraction, with GDP set to fall by 12% this year. Immediate fears of a Russian sovereign default have not materialised and Russia’s financial …
30th March 2022
War in Ukraine punctures economic sentiment The EC’s Economic Sentiment Indicators unsurprisingly fell in most countries in March amid the fallout from the war in Ukraine and there were further large increases in price pressures on the back of rising …
There are already clear signs of spillovers in Central and Eastern Europe (CEE) from the war in Ukraine and we think that the overall hit to GDP growth in the region this year will amount to 1.0-1.5%-pts. Our forecasts for growth are generally below those …
29th March 2022
Russia’s financial markets return from the ashes Trading on the Moscow Stock Exchange returned this week, with the central bank allowing trading of sovereign debt from Monday and selected equities from Thursday. Russian markets remain illiquid and there …
25th March 2022
The potential for around 3 million refugees to settle in Central and Eastern Europe (CEE) by the middle of this year will present a large fiscal cost, but will also boost the size of the labour force and GDP in the near term. We estimate that the increase …
23rd March 2022
Hungary’s central bank (MNB) stepped up the pace of tightening today with a 100bp increase in its base rate, to 4.40%, and the hawkish communications underline the view that the central bank will respond to the deterioration in the inflation outlook with …
22nd March 2022
A close look at banking sector linkages in Central and Eastern Europe provides encouragement that there is little direct exposure to Russia and Ukraine and that any indirect exposure through a Western European parent bank is likely to have minimal …
21st March 2022
Activity remains strong, but war in Ukraine casts a dark cloud Activity data for February show that Poland’s economy continued to expand strongly at the start of this year but the war in Ukraine is likely to drag on the recovery through a hit to exports, …
Russia dodges default The saga over whether Russia’s government would make coupon payments on two Eurobonds this week seems to have been settled for the time being. At least some creditors are reported to have received payments (albeit a little late). …
18th March 2022
The post-meeting speech by Russia’s central bank (CBR) governor Elvira Nabiullina made clear that policymakers think sanctions and autarky are here to stay for the long term. But at the same time, officials at the CBR appear to want to revert back to …
Russia’s banking sector has held up better than might have been expected through the initial stage of the crisis due to large, timely and widespread policy support. But banks will now face the challenge of rising loan losses. While the capital buffers of …
16th March 2022
Russia’s government appears to be heading towards a default on its foreign currency debts for the first time since the Bolshevik revolution. This won’t affect the Russian government’s ability to finance itself (beyond what sanctions have already done) and …
14th March 2022
Russia’s economy is in the early stages of a deep recession and we’ve revised our forecast for GDP to collapse by 12% this year. We’ve also revised our forecasts for Central and Eastern Europe as a result of the war in Ukraine with inflation set to be …
11th March 2022
Downturn at the start of 2022 Turkey’s latest activity figures confirm that the economy entered a downturn at the start of this year as the surge in inflation triggered a further drop in retail sales and weaker domestic demand started to weigh on …
The US and UK energy embargos will reduce Russian exports by just 0.6% of GDP, but adding in the EU’s plan to reduce Russian natural gas imports takes the total loss of export revenues closer to 2% of GDP. Coming alongside growing evidence of a more …
10th March 2022
It is highly likely that the war in Ukraine will accelerate Russia’s shift towards isolation and into autarky. (See here .) This will prevent Russia from catching up with more advanced economies, while the West will face some difficult choices as higher …
Inflation picks up further with sharp acceleration in sight Russian inflation rose to 9.2% y/y in February and, more importantly, the weekly CPI figures up to 4 th March (also just released) show that the collapse in the ruble led to a particularly sharp …
9th March 2022
The growing list of countries imposing restrictions on Russia’s energy exports has raised the likelihood of a deeper contraction in Russia’s economy this year and a wave of corporate defaults. This Update provides a primer on the composition of …
The National Bank of Poland (NBP) stepped up the pace of tightening today with a 75bp interest rate hike, to 3.50%, and the marked deterioration in the inflation outlook due to the war in Ukraine is likely to mean that rates rise much further in the …
8th March 2022
We think that a complete ban on Russian energy imports would cause the prices of Brent crude oil and European natural gas to surge to $160pb and €300/MWh in the near term and settle at still very high levels into next year. The Russian economy would …
7th March 2022
Events in Russia this week have clearly upturned the outlook completely and the growing possibilities of default, a banking crisis and restrictions on energy exports could cause the downturn to spiral. Russia’s financial markets have been in chaos this …
4th March 2022
While supply-chain links between the EU and Russia and Ukraine are small, shortages of seemingly obscure inputs can cause significant disruption, and add to price pressures, if alternatives cannot be sourced quickly. Aside from the most energy-intensive …
3rd March 2022
Inflation smashes through 50% Turkey’s headline inflation rate leapt again to reach 54.4% y/y in February due to the combination of the lira’s collapse in late-2021 as well as higher domestic energy prices and a large minimum wage hike at the start of …
Russia has already suspended the transfer of coupon payments on local-law sovereign debt to foreign investors, and the likelihood that the government and companies are unable or unwilling to make external debt repayments (besides those already affected) …
2nd March 2022
The spread of Russian interbank interest rates over the central bank’s policy rate – which was hiked aggressively on Monday – has widened pointing to some stress in the banking sector. But for now it is far from the levels recorded during 2008/09 and …
The EU would have a number of options to help compensate if Russian gas supplies were to be turned off, but in practice we suspect that some degree of power rationing would be needed. Past episodes of energy rationing were not as damaging as one might …
1st March 2022
The ratcheting up of Western sanctions, alongside a tightening of financial conditions and the prospect of a banking crisis, mean that Russia’s economy is likely to experience a sharp contraction this year. The outlook of course remains incredibly …
Industry faring well as price pressures ease Manufacturing PMIs in February generally pointed to strong manufacturing conditions in the region, but the escalation of conflict in Ukraine adds to the clear downside risks to industry over the coming months. …
New sanctions on Russia have led to a sharp plunge in the ruble, and an effective freeze of most of the country’s financial markets. We think that the outlook now depends mainly on the extent to which this marks the start of an enduring break in Russia’s …
28th February 2022
