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The decision by Russia’s central bank to cut its benchmark one-week repo rate by 50bp to 10.50% today was a close one but, having decided to start easing policy once again we think that interest rates will now fall further than the consensus is currently …
10th June 2016
Growth in the Turkish economy slowed a little in Q1, but it was still extremely strong at 4.5% y/y in working day adjusted terms. Consumption remained the key driver of growth, while investment contracted. The strength of consumer spending makes recent …
The EU’s sanctions on Russia are due to expire in July and, while it is most likely that they will be renewed, it is possible that this comes alongside a broad timetable for scaling them back subject to certain conditions having been met. In this Update , …
9th June 2016
The sharp slowdown in Turkish industry in April suggests that, after a relatively strong Q1, the economy probably slowed at the start of the second quarter. It looks like the boost to the manufacturing sector from the earlier falls in the lira is fading. …
8th June 2016
The breakdown of Q4 GDP data for Central and South Eastern Europe confirmed that the slowdown in growth at the start of the year was the result of a drop in fixed investment, most likely caused by weaker inflows of EU structural funds and more general …
7th June 2016
Russian inflation remained unchanged at 7.3% y/y in May for the third consecutive month, but it looks like it is on course to edge up over the coming months. As a result, we think that the central bank will continue to resist calls to cut rates. We expect …
6th June 2016
Growth in Emerging Europe is set to strengthen over the next few quarters, helped in part by the fact that the drag from Russia will ease as it exits recession. However, while the acute stage of Russia’s crisis has passed, the recovery over 2016-17 will …
2nd June 2016
After a period of relative calm, growing political tensions have once again led to a deterioration in sentiment towards Turkey. As it happens, we think the country’s growth prospects over the next 6-9 months remain reasonably good. But deep-seated …
1st June 2016
Manufacturing PMIs strengthened in most countries across Emerging Europe in May. The rise in the PMIs in Central Europe (Poland, Hungary and the Czech Republic) provides further evidence that the recent weakness in industry was a temporary blip. But while …
The unwinding effects of big exchange rate falls on import prices will continue to drive down inflation in a number of major EMs over the coming months. In those EMs that haven’t experienced a great deal of currency depreciation, the fading impact of oil …
26th May 2016
Russia's first Eurobond issue in three years showed that Western sanctions are no longer preventing the government from raising funds overseas – but by the same token, the amount raised ($1.75bn) was relatively small and came at a price. We estimate that …
25th May 2016
Having cut its policy rate by 15bp to 0.90% earlier today, the National Bank of Hungary’s MPC used the accompanying press release to comment that interest rates would now be left unchanged. In contrast, we think today’s interest rate cut in Turkey is …
24th May 2016
The improvement in the Russian activity data for April, coming on the back of last week’s better-than expected Q1 GDP figures, provides further evidence that the economy is on a slow path to recovery. But conditions remain difficult and the economy is …
23rd May 2016
With one month to go to the UK’s referendum on whether to remain in or leave the EU, concerns are growing in some quarters that a “Brexit” vote could harm Central and Eastern Europe (CEE). As things stand, it seems unlikely that there will be a …
The strength of Polish activity data for April, released today, confirms our suspicion that the weakness seen in Q1 was likely to prove temporary. Indeed, it looks like the economy expanded by around 3.5% y/y at the start of Q2. … Polish Ind. Production & …
19th May 2016
The slowdown in Czech GDP in Q1, to 3.1% y/y from 4.0% y/y, confirms that last year’s bumper growth rates were temporary. But the economy is still strong and today’s figures, coming alongside continued improvements in the labour market and rising …
17th May 2016
The shallower-than-expected 1.2% y/y fall in Russia’s GDP in the first quarter confirms that the acute phase of the crisis is now over. And the annual growth rate could return to the positive territory towards the end of the year. Even so, the recovery …
16th May 2016
The appointment of well-respected former Finance Minister, Alexei Kudrin, as the Deputy Head of the President’s Economic Council has revived hopes that Russia could be set for a new wave of liberalising reforms. However, while there have undoubtedly been …
The slowdown in GDP growth in Central and South Eastern Europe in Q1 supports our view that the very rapid rates of expansion seen at the end of last year weren’t likely to last. At a country level, the data confirm that Hungary made a very weak start …
13th May 2016
The flash Q1 GDP data for Central and South Eastern Europe (C&SEE) to be released later this week and next week are likely to point to growth of 3-3.5% y/y in most countries. Those rates would be weaker than in Q4, but still respectable. We think Romania …
10th May 2016
The ongoing improvement in Turkey’s current account position in March was encouraging, but once again it was driven mainly by a falling energy import bill. Moreover, as last week’s sell-off in the lira highlighted, the currency remains vulnerable to bouts …
Turkish industrial production data for March indicate that the economy grew at a faster pace in Q1 than in Q4, but that the economy lost momentum towards the end of the quarter. What’s more, the detailed breakdown of the figures show that some of the …
9th May 2016
The Romanian MPC once again sounded relatively hawkish at this afternoon’s press conference, and we remain comfortable with our view that monetary policy will be tightened later this year to take some of the steam out of the recent consumer boom. In …
5th May 2016
The persistent depth of deflation in Poland, particularly when compared with the rest of Central Europe, appears to be due largely to measurement issues, rather than significantly weaker domestic price pressures. The “true” rate of inflation, while weak, …
Reports that Turkey’s Prime Minister, Ahmet Davutoglu, is likely to quit his role amid growing tensions with President Erdogan will reinforce concerns about the shift towards increasingly authoritarian policymaking in the country. It’s still early days, …
The sharper-than-expected decline in Turkish inflation last month, to 6.6% y/y, supports our view that the central bank’s current easing cycle has further to run. However, the fall in the headline rate was driven almost entirely by food inflation, while …
3rd May 2016
The statement by the Russian central bank following its decision to leave the one-week repo rate on hold today was dovish, but less so than what the markets seem to have expected. The Council’s evident ongoing concerns about inflation risks mean we remain …
29th April 2016
This month’s Economic Sentiment Indicators (ESIs) in Emerging Europe were a mixed bag, providing early signs that Poland’s economy strengthened sharply at the start of Q2, while the other Central European economies slowed. Overall, however, the picture …
28th April 2016
The statement accompanying today’s MPC meeting in Hungary was a little more cautious than we had expected, but even so, with inflation likely to stay subdued and growth weakening, we think there’s scope for at least a couple more interest rate cuts in the …
26th April 2016
It’s been a good month for Turkish financial markets. The lira and equities have strengthened. And the surprisingly sharp fall in inflation last month allowed the central bank to ease monetary policy further, helping to bring local currency bond yields …
The effects of sharp falls in EM exchange rates since 2014 – which pushed inflation up to multi-year highs in a number of major economies – are now starting to fade. Assuming there isn’t another big sell-off in currencies, inflation should fall further in …
Some of the gloom surrounding Russia’s economy seems to have lifted over the past month. The rise in oil prices has triggered a rally in local financial markets – the ruble is up by 12% against the dollar since the start of March. And the latest activity …
25th April 2016
The sharp decline in Turkish inflation since January has caught many (ourselves included) by surprise and we think the headline rate is likely to continue to fall over the rest of this year. That means further interest rate cuts are likely in the coming …
21st April 2016
The Russian government’s use of its oil funds to finance the budget deficit will cause the monetary base to expand and is likely to push the banking sector from having a deficit of liquidity to a surplus in the near future. This has raised concerns about …
The Turkish MPC’s 50bp cut in the overnight lending rate today, to 10.0%, was pinned on the recent improvement in inflation (although political pressure no doubt played a role) and with the headline rate likely to edge down further in the coming months, …
20th April 2016
Russia’s activity data for March were weaker than in February, as expected, but the broad trend is still that the slump in the economy is easing. GDP probably contracted by around 2.0% y/y over Q1 as a whole, compared to a fall of 3.8% y/y in Q4. … …
19th April 2016
At first sight, the sharp fall in Ukraine’s current account deficit over the past few years suggests that the economy’s external vulnerabilities have diminished significantly. But that masks the fact that Ukraine’s short-term external debt has risen and …
The disappointing Polish activity data for March suggest that overall GDP growth may have slipped below 3% y/y. However, we don’t think this marks the start of a sharp slowdown; indeed, we expect growth to strengthen in Q2. … Polish Ind. Production & …
There is some evidence that the fall in the lira in the past few years has led to import substitution in parts of Turkey’s manufacturing sector, suggesting that the economy’s competitiveness has improved. However, the gains are not widespread and, in any …
12th April 2016
The resignation of Ukraine’s prime minister on Sunday, coming alongside waning support for the government, will reignite concerns over the future of the country’s frozen IMF programme. While for now at least it looks like a fresh election will be avoided, …
11th April 2016
The decline in Turkey’s current account deficit in February was due almost entirely to lower oil prices, which reduced the energy import bill. We think the deficit is unlikely to improve from here on, but equally it should remain fairly small by recent …
The sharper-than-expected increase in Turkish industrial production in February provides some evidence that local firms are benefiting from a weaker lira. Elsewhere, the decline in Hungary’s inflation rate back into negative territory last month has …
8th April 2016
The Polish MPC made it clear once again at this afternoon’s post-meeting press conference that it’s not likely to loosen monetary policy in the near future. Although inflation will remain subdued, so long as the economy holds up well – as we expect – we …
6th April 2016
Uncertainty regarding who will take over at the helm of the Turkish central bank when the current governor’s term expires this month has raised concerns that a government loyalist could be put in place, resulting in aggressive (and reckless) policy …
5th April 2016
The sharp decline in Turkish inflation in March, to a seven-month low of 7.5% y/y, was driven by a drop in food inflation, and masked the fact that core inflation remains extremely strong. Even so, today’s data make it more likely that the central bank …
4th April 2016
The release of Russian Q4 GDP data today provides further evidence that the worst of the recession is now behind us. And monthly activity data suggest that the slump in activity continued to ease in Q1. … Russia GDP …
1st April 2016
Manufacturing PMIs declined last month in most of Emerging Europe, but overall they continue to paint a picture of a Russian economy that is still struggling and of outperformance in Central Europe. The fact that the Polish PMI rose further supports our …
The Romanian MPC’s press conference this afternoon reinforced our view that concerns about loose fiscal policy will prompt a move towards tighter monetary conditions. This might happen as soon as the next meeting in May. In contrast, the Czech MPC …
31st March 2016
The whopping 5.7% y/y rise in Turkish GDP in Q4 was flattered by working day effects, but even taking this into account the economy remained extremely robust. The strong growth figures coming alongside mounting signs of an inflation problem make the …
The rise in the Economic Sentiment Indicators (ESIs) in most Central and Eastern European economies this month was encouraging and suggests that growth in the region as a whole may turn out to be close to 4% y/y in Q1, up from 3.5% y/y in Q4. … Economic …
30th March 2016
