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Putin’s fiscal giveaways, but no hurrah President Putin’s state of the nation address this week outlined more social welfare measures to help households ahead of elections in September, but the implications for growth and inflation will be limited. …
23rd April 2021
Russia’s central bank (CBR) hiked its policy rate by 50bp, to 5.00%, at today’s meeting and the accompanying statement strengthened the central bank’s hawkish message about the need for additional tightening to bring inflation back to target. We think …
Israel has been the world leader in the vaccination race and the early evidence is that the rapid re-opening of the economy has driven a strong rebound in activity, particularly in services sectors. In this Focus , we launch our coverage of Israel and …
22nd April 2021
Polish economy resilient in face of third virus wave Polish industrial production and retail sales data for March were much stronger than expected in light of the third virus wave and recent tightening of containment measures across Europe. The big …
Retail and industry diverge, but signs of underlying strength Russian industrial production and retail sales figures showed a marked divergence in growth in March, but the big picture is that activity has picked up recently and that the economy held up …
20th April 2021
Virus peaking in CEE, but Turkey getting hit hard Third virus waves across much of Central and Eastern Europe (CEE) seem to have peaked and authorities have started to ease restrictions on activity. But the situation in Turkey has gone from bad to worse, …
16th April 2021
The decision by the US to impose sanctions on newly-issued Russian sovereign debt has caused a sell-off in the ruble and sovereign bonds today, but we think any further market fallout or the macroeconomic impact will be limited unless sanctions are …
15th April 2021
The decision by the Turkish central bank (CBRT) to leave its policy rate at 19.00% was accompanied by reassuring language that the MPC, under new governor Sahap Kavciouglu, aims to bring down inflation. But the language also suggests that they are looking …
The resilience of tax receipts and the improved outlook for oil and gas revenues should provide scope for Russia’s government to soften its grip on the public finances and ease policy over the next few years. We expect an additional 2.0% of GDP of …
13th April 2021
Economy losing steam, headwinds intensify Turkey’s activity figures for February suggest that the economy lost momentum in the first quarter of this year and the recent surge in COVID-19 cases, combined with the tightening of financial conditions, means …
Russia-Ukraine tensions flare up An escalation of military tensions along the Russia-Ukraine border poses a major threat to political stability in the region and could exacerbate some existing macro vulnerabilities in both countries. For context, …
9th April 2021
Turkey’s large external vulnerabilities mean that aggressive rate cuts by the central bank (CBRT) would run the risk of sharp and destabilising falls in the lira. A probable next step by policymakers would be a turn towards capital controls. But we doubt …
8th April 2021
Rise in inflation to prompt further rate hikes The further rise in Russia’s headline inflation rate last month, to 5.8% y/y, is likely to prompt the central bank to follow up March’s interest rate hike with further tightening. We have pencilled in two …
6th April 2021
Holding up through the second wave The improvement in Russian GDP growth to -1.8% y/y in Q4 was driven by a rebound in household consumption and investment and confirms that the economy held up well during the second virus wave. This is likely to continue …
1st April 2021
Polish zloty re-touches its post-GFC lows The Polish zloty touched its weakest level against the euro this week since 2009 but we don’t expect the currency to lose further ground from here. The zloty has been one of the worst performing EM currencies over …
Supply problems and price pressures continue to build The manufacturing PMIs showed that supply problems intensified in March, and this continued to push up price pressures. While supply disruption also artificially pushed up the headline PMIs, there are …
Past experience suggests that, with inflation near a peak and the economy slowing (alongside pressure from President Erdogan for lower interest rates), Turkey’s central bank will push ahead and ease monetary conditions in the coming months . Last week we …
31st March 2021
Sentiment increases in March, but unlikely to last The EC’s Economic Sentiment Indicators (ESIs) showed an improvement across most of Central and Eastern Europe in March, despite a surge in virus cases across the region. That said, sentiment in Czechia …
30th March 2021
Third waves, lockdowns and new GDP forecasts The rise in virus infections, extension of containment measures, growing headwinds to the auto sector and slow pace of vaccination means that we are revising down our GDP forecasts in Central Europe this year. …
26th March 2021
The upheaval at Turkey’s central bank means that we now expect a 200bp interest rate cut next month followed by further aggressive easing in the second half of 2021. But the result is that inflation will stay high and the lira will fall much further, to …
Emerging Europe has been at the heart of the shift in EM monetary policy over the past month, with central banks in Russia, Turkey and Ukraine raising interest rates in March. The triggers for tightening were largely home grown in nature, including a …
25th March 2021
The replacement at the helm of Turkey’s central bank is particularly worrying against a backdrop of a dire balance of payments position, large dependence on foreign capital inflows and the central bank’s severely depleted foreign exchange reserves. If …
23rd March 2021
Hungary’s central bank (MNB) left its key interest rates on hold today but the tone of the communications could not have been much more hawkish without raising interest rates. The MNB is defending its view that inflation will settle back to the 3% target …
The abrupt sacking of Turkey’s central bank (CBRT) governor on Friday has triggered sharp falls in the lira and a tightening of external financing conditions. The banking sector is a key source of vulnerability and arguably looks more exposed than it was …
22nd March 2021
The shock decision by Turkey’s President Erdogan to sack central bank governor Naci Agbal late on Friday is likely to trigger large falls in the lira when markets open on Monday. It looks like the central bank’s (CBRT’s) efforts to fight the country’s …
20th March 2021
Economy struggling to gain momentum Russian industrial production and retail sales figures for February are consistent with GDP falling by around 4.0% y/y at the start of the year. The economy is struggling to gain momentum and, with the vaccine rollout …
19th March 2021
US-Russia relations reach a new low Comments from US President Joe Biden this week threatening to take a tougher stance against Russia have raised the prospect of tighter US sanctions that could deal a significant blow to Russian markets. Mr. Biden’s …
Russia’s central bank (CBR) unexpectedly hiked its key policy rate by 25bp to 4.50% at today’s meeting in response to the recent surge in inflation and the accompanying communications sent a strong signal that it is prepared for an aggressive tightening …
Industry disruptions and virus waves stall the recovery The latest Polish activity data for February were a little weaker than expected which, combined with the growing headwinds to the industrial sector and the reimposition of virus containment measures, …
Turkey’s central bank didn’t disappoint investors, delivering a larger-than-expected 200bp interest rate hike (to 19.00%) today, and we think that it will keep monetary conditions tighter than most expect over the next couple of years. That will provide a …
18th March 2021
The renewed surge in virus cases and tightening of restrictions across Central Europe will deal a heavy blow to the recovery in the first half of this year. Meanwhile, slow vaccine rollouts mean that the ‘vaccine bounce’ that we had anticipated from Q2 …
17th March 2021
Turkey’s central bank (CBRT) looks set to hike interest rates further this week, and the experience from other EMs suggests that it will need to keep real interest rates elevated for several years to bring inflation down on a sustained basis. Lowering …
15th March 2021
Turkey’s current account on an improving trend Current account figures out of Turkey this week were a bit worse than expected but the underlying trend suggests that the economy is rebalancing. This, coming alongside a further interest rate hike next week, …
12th March 2021
Industry going strong The Turkish activity figures for January suggest that the economy held up relatively well despite the tightening of COVID-19 containment measures around the turn of the year. And there are encouraging signs that the rise in interest …
The disruption to auto production caused by semiconductor shortages is yet another reason (alongside tight COVID-19 restrictions) to expect growth in Central and Eastern Europe (CEE) to struggle in H1 2021 . Since late 2020, global shortages of …
10th March 2021
A series of strong inflation readings in Russia have put the central bank’s ability to meet its inflation target over the next year under threat and brought forward the prospect of monetary tightening. We think the central bank will use its meeting on 19 …
Acceleration in inflation poses a serious question to the CBR The larger-than-expected rise in Russian inflation to a more than four-year high of 5.7% y/y in February is likely to be followed by another increase in March which poses a serious challenge to …
5th March 2021
CBRT: hiking again Events this week make another interest rate hike by the Turkish central bank highly likely – we now expect a 100bp rise in the one-week repo rate (to 18.0%) at the meeting on 18 th March. Two factors lie behind this shift. The first was …
The Polish central bank’s latest forecasts, published this afternoon, tell a story in which the economic recovery will strengthen over the coming years and inflationary pressures will pick up strongly. But we think that policymakers will tolerate higher …
3rd March 2021
Inflation at its peak, but a fresh lira sell-off could prompt rate hikes The stronger-than-expected rise in Turkey’s headline inflation rate, to 15.6% y/y in February, is likely to mark the peak and we expect inflation to fall steadily over the next six …
The full breakdown of Q4 GDP data for Central Europe showed that net trade exerted a drag on growth in Poland while it provided a boost to Czechia and Hungary. But looking ahead, mounting headwinds to the recovery mean that we now expect GDP to grow only …
2nd March 2021
Supply problems cause input price pressures to build The manufacturing PMIs for February showed strong increases in output and new export orders in Poland and Russia, while manufacturing conditions deteriorated in Turkey and Czechia. The survey also …
1st March 2021
Recovery faltering at tail end of 2020 Turkey’s economy continued to recover in Q4 2020 and was one of the few economies around the world to grow over last year as a whole. But there are signs that activity faltered at the tail end of the year and this …
Pressure growing for another rate hike in Turkey The Turkish lira has been among the hardest hit EM currencies this week and, while concerns that the shift in policymaking is unravelling are probably overdone, there’s a growing risk that the CBRT will be …
26th February 2021
Rise in sentiment to be short-lived as third virus waves take hold The EC’s Economic Sentiment Indicators (ESIs) showed an improvement in sentiment across Central and Eastern Europe in February. A broad-based pick up in services sentiment drove the …
25th February 2021
Emerging Europe came through the second virus wave in Q4 in a better state than we had expected, with services sectors holding up and industry booming in Central Europe. But the headwinds have mounted recently. The extension of virus containment measures …
24th February 2021
Labour markets across Central and Eastern Europe (CEE) have held up well since the start of the pandemic and we think this will continue over the next few years, which will support recoveries across the region. One key risk to this view is that government …
Oil and the ruble: a broken friendship? The threat of Western sanctions on Russia is clouding the near-term outlook, but the recent sharp increase in oil prices suggests that fiscal policy may become a bit more supportive this year and that there’s scope …
19th February 2021
Industry resilient, but prolonged restrictions hit retail again Polish activity data for January suggest that the economy broadly stagnated at the start of the year as the extension of virus containment measures hit the retail sector while industry …
Tepid recovery as industry weakens Russian activity data for January show that industry came off the boil at the start of the year while activity in the retail sector picked up strongly. The fall in virus cases and relaxation of some restrictions should …
18th February 2021
