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Turkey’s banks are generally in a good position to cope with sharp falls in the lira: they have large capital buffers to deal with a rise in non-performing loans, off-balance sheet instruments to mitigate the threat from currency mismatches on their …
22nd November 2021
Turkey roasted In a turbulent week for Turkey, we’ve written various pieces on our services looking at the implications so we’ll summarise the key points in this Weekly . We looked at how a sell-off in the lira could damage the economy and financial …
19th November 2021
The fresh falls in the Turkish lira following the CBRT’s interest rate cut today have left Turkey firmly in crisis territory and echoes of previous “sudden stops” during major EM currency crises in the past are growing louder. Without an aggressive policy …
18th November 2021
The sharp falls in the lira over the past few days clearly weren’t enough for Turkey’s central bank to stand up to President Erdogan as it pushed ahead with a 100bp cut (to 15.00%) to its one-week repo rate. While the CBRT did signal that the easing cycle …
Softer rise in GDP, growth likely to slow further in Q4 The softer-than-expected 4.3% y/y expansion in Russia’s GDP in Q3 suggests that the recovery lost momentum during the summer and, with the severe virus outbreak likely to take its toll on domestic …
17th November 2021
There has been no let up for the Turkish lira today and all eyes are turning to the central bank’s interest rate decision tomorrow. Policymakers’ increased tolerance to falls in the lira as well as pressure from President Erdogan mean that an interest …
Investors were initially disappointed following the decision by Hungary’s central bank (MNB) to raise its base rate by only 30bp (to 2.10%) today, but the hawkish post-meeting communications and a pledge to step up the pace of tightening by using other …
16th November 2021
The Turkish lira has remained under significant pressure at the start of this week and there is a growing risk that the central bank’s continued obedience to pressure from President Erdogan for interest rate cuts results in sharp and disorderly falls in …
Growth slows sharply as the re-opening boost fades in Q3 Israel’s economy slowed much more sharply than expected in Q3 as a shift in consumption habits away from goods and a fading of the re-opening boost to services caused a marked slowdown in …
Recoveries fading as supply chain disruptions take their toll The Q3 GDP data for Central and Eastern Europe (CEE) generally undershot expectations and suggest that economies entered Q4 with a clear loss of momentum. With supply disruptions set to persist …
Inflation loses its momentum in October The much-weaker-than-expected rise in consumer prices in Israel in October was due to a sharp fall in airfares, but the big picture is that underlying inflation pressures generally remain soft. We don’t think the …
15th November 2021
Inflation hits new highs across CEE Inflationary pressures continue to strengthen across Central and Eastern Europe, keeping the onus on central banks to tighten policy aggressively. October inflation data this week provided for ugly viewing. In Hungary, …
12th November 2021
Another strong rise in GDP, inflation pressures to persist The solid 2.1% q/q rise in Poland’s GDP in Q3 took the economy to almost 3% above its pre-pandemic level, marking one of the strongest recoveries across Europe. But capacity constraints are …
Another strong performance in Q3, but downside risks mounting Turkey’s activity data for September were the proverbial mixed bag with industrial production falling back but retail sales putting in another robust performance. On balance, the data suggest …
The phasing out of crisis support and strength of tax revenues have boosted Israel’s public finances and the conservative stance of last week’s budget will help to narrow the deficit towards 3% of GDP in 2022, although we don’t think this will derail the …
11th November 2021
The sharp tightening of monetary policy in the region will strengthen the preference for savings, dampen lending growth and raise debt servicing costs next year. It is plausible to think that higher interest rates could trim 0.5-0.8%-pts off GDP growth …
9th November 2021
You’re not dreaming: Israel passed a budget For the first time in more than three years, Israel’s government has brought some stability to the public finances by passing the 2021 and 2022 budgets. These are not game changers as far as fiscal policy is …
5th November 2021
Auto producers in Central and Eastern Europe (CEE) have experienced intermittent factory closures in the second half of this year and things may get worse before they get better. Motor vehicles production will remain stop-start until shortages of …
The Czech National Bank (CNB) shocked everyone with a 125bp interest rate hike at today’s meeting and while this was clearly intended to front-load tightening, the hawkish communications suggest that the tightening cycle still has some way to go. We …
4th November 2021
The National Bank of Poland’s (NBP) decision to raise its policy rate by a larger-than-expected 75bp to 1.25% alongside the upwards revision to its inflation forecast suggests to us that the NBP is taking the fight against inflation much more seriously …
3rd November 2021
Inflation jump to prompt further 75bp hike The further rise in Russian inflation to 8.1% y/y last month paves the way for the central bank to hike the one-week repo rate by another 75bp (to 8.25%) when it meets in December. The outturn was up from 7.4% …
The economic and political backdrop in Turkey is eerily similar to that which preceded the currency crisis in 2018, although one key difference now is that the lira doesn’t appear to be fundamentally misaligned. The upshot is that, even if the lira were …
Inflation rises again, but further rate cuts still seem likely Turkey’s headline inflation rate rose further in October to reach 19.9% y/y but the small drop in core inflation and political pressure on the central bank means that further interest rate …
Supply constraints take a greater toll on industry The manufacturing PMIs in October showed that supply disruptions took a greater toll at the start of Q4, with industrial production growth in Turkey slowing and Czech industry likely to have contracted …
1st November 2021
A strong end to Q3, but virus outbreak dampens outlook Russia’s economy enjoyed a strong end to Q3, but the country’s severe COVID-19 outbreak has clouded the outlook more recently and is likely to cause growth to soften in Q4. Russia’s industrial sector …
29th October 2021
Lira see-saws but CBRT more tolerant A diplomatic spat between Turkey and its Western allies this week was quickly resolved, but it highlighted how vulnerable the lira is to geopolitical developments. And comments from Turkey’s central bank governor …
Further rise in Polish inflation to prompt another rate hike The rise in Poland’s headline inflation rate to 6.8% y/y in October opens the door for the central bank to deliver a 25bp at next week’s MPC meeting. Elsewhere, Czechia’s economy performed a …
The surge in COVID-19 cases and deaths in Eastern Europe has prompted the re-imposition of restrictions and it looks like measures will be stepped up, weighing on recoveries in Q4. Tight restrictions may not remain in place for long across Central Europe, …
28th October 2021
Oil, gas and coal prices have reached multi-year highs in recent weeks and this Update takes a look at some of the implications for the region. In short, an improvement in Russia’s terms of trade has boosted its external position, the public finances and …
Sentiment softens at the start of Q4 The EC’s Economic Sentiment Indicators for October showed that sentiment in industry and services softened across most of Central and Eastern Europe at the start of Q4. With rising virus cases adding to existing …
COVID-19 outbreaks have surged across the region in the past month. Record high daily cases have been reported in Russia, Romania, Bulgaria and Latvia and infections are rising sharply elsewhere. Governments have tightened containment measures, including …
26th October 2021
A renewed wave of COVID-19 cases has prompted some governments to reimpose strict containment measures and talk of lockdowns is becoming more widespread. The downside risks to what are already strong headwinds facing the recovery are mounting. COVID-19 …
22nd October 2021
Russia’s central bank (CBR) stepped up the pace of its tightening cycle again at today’s meeting with a larger-than-expected 75bp interest rate hike, to 7.50%, and the hawkish tone of the accompanying communications suggest that further tightening will be …
Any remaining confidence in the credibility of Turkey’s central bank (CBRT) was shattered after today’s larger-than-expected 200bp interest rate cut, to 16.00%. The lira hit a fresh record low against the dollar and we think that it will continue to …
21st October 2021
Ending Q3 on a positive note The latest activity data suggest that Poland’s economy ended Q3 with solid momentum, and GDP is likely to have risen by 1.6% q/q (4.7% y/y) in Q3 as a whole. But with the re-opening boost fading and supply issues likely to …
Overview – The region has experienced a rapid recovery, but the re-opening boost has now faded and the region is likely to face stronger headwinds in the near term due to surging COVID-19 cases, rising inflation and supply disruptions. Central European …
20th October 2021
GDP in the Baltic States has already surpassed pre-pandemic levels and we expect this strength to be sustained, with growth outpacing Central Europe and the euro-zone as a whole over the coming years. This strong recovery will use up spare capacity fairly …
18th October 2021
Erdogan playing with fire in push for rate cuts After putting the final nails in the coffin of the Turkish central bank’s credibility with last month’s surprise interest rate cut, the grave started to be dug this week with the firing of three MPC members. …
15th October 2021
Inflation close to reaching a peak The further rise in Israeli inflation to 2.5% y/y in September contained no major surprises and we think it will ease towards the lower end of the central bank’s 1-3% target next year. Even so, with the recovery motoring …
Central and Eastern Europe is one of the regions of the world where we think that the risk of sustained higher inflation in the next few years is greatest. The Phillips curve is alive and we think the combination of a cyclical recovery in demand for …
13th October 2021
Economy bounces back from weak start to Q3 Turkey’s industrial sector bounced back in August following a weak start to the quarter and, while retail sales growth slowed, it looks like the economy recorded another robust increase in GDP in Q3. Industrial …
12th October 2021
Poland-EU tensions crank up a notch The decision this week by Poland’s Constitutional Court to rule that some EU laws are in conflict with the Polish Constitution has sent shockwaves through Europe. The ruling gets to the heart of the conflict over the …
8th October 2021
The Bank of Israel revised up its forecast for GDP growth at today’s meeting and struck a more hawkish tone on inflation as it announced that it will end its asset purchase programme later this year. This was in line with expectations, but Governor Yaron …
7th October 2021
Inflation hits a new high, tightening cycle may continue for longer Russian inflation accelerated to a fresh five-year high of 7.4% y/y in September and, while this was mainly driven by a sharp increase in food inflation, the central bank is likely to …
6th October 2021
The National Bank of Poland (NBP) unexpectedly hiked its policy rate by 40bp to 0.50% at today’s MPC meeting, but the accompanying communications were underwhelming and suggest that the rate hike was not as hawkish a move as might have been first …
The Czech parliamentary election that kicks off on Friday looks to be one of the most unpredictable for some time. A victory for the incumbent ANO party would continue the recent trend of loose fiscal policy and support GDP growth, but at the cost of …
The National Bank of Romania (NBR) raised its policy rate by 25bp to 1.50% at today’s meeting, and the backdrop of rising inflation, large twin deficits and currency weakness means that further rate hikes are likely to be delivered over the next 12 …
5th October 2021
Inflation rises, but further rate cuts still on the cards Turkey’s headline inflation rate rose further to 19.6% y/y in September and core inflation partially reversed its recent decline, but political pressure means that the central bank is likely to cut …
4th October 2021
Industry coming off the boil, but consumer demand remains strong Russia’s hard activity data for August showed that industry has continued to struggle while loose fiscal policy has supported consumer spending. We think that consumer demand should hold up …
1st October 2021
CEE: loose fiscal policy set to persist in 2022 Government budget drafts approved for 2022 this week in Czechia and Poland and further details of social support in Hungary suggest that fiscal policy will remain supportive of growth in Central Europe and …
