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The smaller-than-expected fall in Turkish inflation last month, to 7.2% y/y, means the central bank won’t hold an extraordinary meeting tomorrow to lower interest rates, but this is only likely to result in further pressure from the government to ease …
3rd February 2015
Preliminary annual 2014 Russian GDP data, which showed that the economy grew by 0.6% over the year as a whole, are consistent with a small year-on-year fall in GDP in the final quarter of last year. And, crucially, this is yet to reflect the full impact …
30th January 2015
Today’s surprise decision by the Central Bank of Russia (CBR) to cut its one-week repo rate by 200bp, to 15.0%, reflects political pressures rather than economic reality. The decision was premised on the need to provide more support to the economy, but in …
News that Ukraine’s government plans to hold “discussions” with bondholders has been widely interpreted as a precursor to some form of default, and dollar bond yields have jumped accordingly in recent weeks. It’s hardly surprising that Ukraine has arrived …
29th January 2015
January’s Economic Sentiment Indicators dipped across most of Central and South Eastern Europe, but they were still strong and suggest that the region has continued to weather headwinds from Western Europe and Russia relatively well. The breakdown …
We’re often asked about the extent to which Russia’s sizeable foreign exchange reserves provide a buffer against lower oil prices and capital flight and for how long they might last. There are lots of moving parts, but the short point is at the current …
The key point that stands out in December’s activity data for Russia is the sharp jump in retail sales growth. However, this reflects panic buying as the ruble collapsed at the end of last year. Hence, this is only likely to be temporary and will almost …
28th January 2015
The communiqué accompanying the Hungarian MPC’s decision to leave interest rates unchanged at 2.1% earlier today once again signalled that current monetary conditions are likely to stay in place for an “extended” period. Nonetheless, the MPC did …
27th January 2015
Inflation has diverged significantly across the emerging world over the past few months. While some economies have slipped into deflation, in a number of countries consumer prices are rising at a double-digit pace. We expect this trend to continue into …
The preliminary estimate of Polish annual 2014 GDP, which showed an expansion of 3.3% over the year as a whole, is consistent with a modest slowdown in economic growth from 3.3% y/y in Q3 to 3.0% y/y in Q4. This appears to have been driven largely by …
The collapse in the ruble appears to have wiped out a large chunk of the Russian banking sector’s capital and we think the government will need to expand its current recapitalisation plans significantly. At the same time, problems in the banking sector …
26th January 2015
The ECB’s larger-than-expected quantitative easing programme has led to a rally in Central European equities and currencies, although this hasn’t been substantial. Meanwhile, the yields on Ukrainian dollar bonds have surged further following hints from …
23rd January 2015
Today’s meeting between President Putin and government ministers to discuss anti-crisis measures and budget amendments suggests that the authorities are finally starting to acknowledge the new economic realities. Fiscal tightening looks almost certain. …
21st January 2015
The rebound in Polish industrial production growth, to 8.4% y/y, last month was flattered by working day effects, but even so, it provides an encouraging early sign that the economy is weathering headwinds from both the euro-zone and Russia. At the …
Today’s 50bp cut in the Turkish one-week repo rate, to 7.75%, doesn’t necessarily mark an easing of monetary conditions. It’s much more important to look at interbank interest rates, and these have hovered near the central bank’s overnight lending rate, …
20th January 2015
The ECB looks almost certain to launch a programme of quantitative easing this week but, unless it surprises in the scale and breadth of its asset purchases, the impact on the financial markets in Central and Eastern Europe is likely to be limited. That …
19th January 2015
December’s Polish CPI data, which confirmed that the economy fell deeper into deflation, add to the evidence supporting a loosening of monetary policy over the coming months. However, the sharp rise in the Swiss franc earlier today, and concerns about the …
15th January 2015
Today’s decision by the National Bank of Poland to keep its policy interest rate unchanged at 2.00% was clearly on a knife edge and, with the economy set to remain in deflation for much of this year, we think the direction of the next move in rates will …
14th January 2015
The sharp drop in oil prices will push much of Central and South Eastern Europe into deflation over thecoming months and we have revised down our inflation forecasts accordingly. However, for mostcountries, the risk of deflation becoming entrenched is low …
The immediate outlook for Polish interest rates has been muddied by the increasingly acrimonious divisions that have opened up within the MPC. On balance it looks more likely that the Council will opt to leave the policy rate unchanged at 2.0%, rather …
13th January 2015
Weak exports and strong non-oil imports caused Turkey’s current account deficit to widen in November, in spite of the sharp fall in oil prices. All in all, the data provide early signs that Turkey is likely to consume, rather than save, most of the …
The tensions in Russia’s financial markets triggered by last month’s ruble crisis seem to have eased over the past couple of weeks. But the first signs have emerged that the economy is falling into recession. … Russia: market tensions ease, but …
12th January 2015
Renewed fears of a Greek exit from the euro-zone have raised concerns about contagion to Central and Eastern Europe (CEE). This is understandable. After all, when the threat of euro-zone break-up first came to the fore in 2011-12, it caused turmoil in …
9th January 2015
The sharp fall in Czech inflation last month, to just 0.1% y/y, was due to both base effects and the impact of lower oil prices on fuel inflation. There is a risk that the headline inflation rate could slip into negative territory over the coming months. …
December’s Economic Sentiment Indicators provide further evidence that, despite the headwinds from both the euro-zone and Russia, growth in Central and Eastern Europe held up well at the end of last year. The strength of the consumer and retail surveys …
8th January 2015
The weakness of Turkish industrial production in November, which grew by just 0.7% y/y and fell by 0.1% over the month, provides an early sign that GDP may have contracted over the quarter. In contrast, growth in Hungary’s industrial sector picked up …
The National Bank of Romania’s Governor, Mugur Isarescu , struck a dovish note at this afternoon’s press conference, which suggests that the interest rate cut earlier today to a fresh record low of 2.50% is unlikely to be the last in the easing cycle. …
7th January 2015
2014 was the year that political risk returned to Emerging Europe and the political and economic fallout from the Russia-Ukraine crisis is likely to reverberate this year too. But we think there are three other political risks that investors need to keep …
6th January 2015
The sharp fall in Turkish inflation last month, to 8.2% y/y from 9.2% y/y, was an encouraging development, but core inflation remained extremely high. Elsewhere, December’s batch of manufacturing PMI data provided the first sign that Russia’s currency …
5th January 2015
The Russian ruble has stabilised in recent days, but only after the central bank introduced a raft of measures to limit ruble liquidity – including a massive hike in interest rates – and, perhaps more importantly, oil prices started to edge up. The …
22nd December 2014
Although the recent drop in oil prices will continue to exert downward pressure on inflation in most parts of the emerging world, it won’t provide a lasting solution for the economies with high, deeply embedded inflation problems. As a result, …
19th December 2014
The Russian ruble has rallied over the past 24 hours, but there are growing signs that the crisis is spreading to the banking sector. In particular, interbank interest rates have jumped to over 27%, which is well above the cost of central bank liquidity …
The mounting economic crisis in Russia meant that there has been greater-than-usual focus on President Putin’s annual press conference, which is taking place this morning. In this Update we provide our instant reaction to the key points that have been …
18th December 2014
There are more differences than similarities between the current crisis in Russia and the crisis in 1998, but one point in common is that both have their roots in severe strains in the country’s balance of payments. In this sense, the lesson from 1998 is …
The Central Bank of Russia has this afternoon announced a raft of measures that, while on their own aresmall, collectively suggest that the authorities have at last started to develop a strategy for containing theeffects of the ruble’s collapse on the …
17th December 2014
The ruble crisis has sparked fears of contagion to Russia’s financial sector and a meltdown in the economy. A rise in interbank interest rates tends to be best indicator of stress in the banking sector. These have jumped in recent days but, unlike in …
The raft of activity data from Russia for November contains some signs that investment has started to weaken but in general the picture is still of an economy that is stagnating rather than collapsing. The key point however is that that these data predate …
The crisis in Russia, coming alongside renewed weakness in the euro-zone, adds to the headwinds facing Central and Eastern Europe (CEE). Thankfully, the threat of potentially explosive financial contagion from the crisis in Russia looks limited. But the …
16th December 2014
Last night’s emergency interest rate hike in Russia has raised more questions that it has provided answers. Part of the renewed pressure on the ruble today stems from oil prices, which have fallen again this morning. But more fundamental concerns are …
The renewed sharp falls in the ruble today will fuel speculation that the authorities could resort to increasingly unorthodox measures to help stabilise the currency, including capital controls. But while we would not rule out the possibility that the …
15th December 2014
On the face of it, November’s Polish CPI data, which showed that the economy remained in deflation, argue in favour of additional interest rate cuts. But we’re not convinced that these figures will sway some of the more hawkish MPC members. … Poland …
The ruble has continued to fall in spite of the rise in Russian interest rates, raising speculation that capital controls may be introduced. While we wouldn’t rule these out, we still think they are likely to be a measure of last resort. Elsewhere, the …
12th December 2014
The 100bp hike in Russian interest rates today was the minimum the central bank (CBR) had to deliver given the recent slide in the ruble . With the ruble likely to remain under pressure and inflation set to rise further over the coming months, we think …
11th December 2014
Turkey’s current account deficit continued to decline in October and the fall in oil prices means it should narrow even further, towards 5% of GDP, over the coming months. Meanwhile, Hungary’s CPI data for November showed that the recent slump in oil …
Today’s weaker-than-expected Turkish Q3 GDP data highlighted that domestic demand remained extremely sluggish and are likely to result in further government pressure on the central bank to lower interest rates. But extremely high inflation means a …
10th December 2014
Ukraine’s deepening recession and the slide in the central bank’s FX reserves have raised fresh questions about whether the government will default on its debt. On the economics alone, we think default looks almost inevitable. But the picture is …
8th December 2014
The modest weakening of Turkish industrial production in October reinforces our view that, while the slowdown in the economy has now bottomed out, it’s likely to be a sluggish recovery from here on. Elsewhere, data from the Czech Republic suggest that …
Russian inflation accelerated sharply to 9.1% y/y in November and, with the ruble falling further over the past few weeks, it is on course to continue rising over the coming months. We think that Russian inflation will peak at around 11% by the middle …
4th December 2014
Comments from Turkey’s Finance Minister, Mehmet Simsek , that the sharp fall in oil prices will remove the economy’s status as one of the most fragile in the emerging world have some basis. The current account deficit is likely to narrow, and both …
