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The National Bank of Romania (NBR) cut interest rates today amid concerns that the economy is on the cusp of a new recession. We expect one further cut this year, but the threat of financial contagion from the euro-crisis is a formidable barrier to more …
29th March 2012
The Russian economy is in a sweet spot for now: inflation is at record lows and growth is strong. But we doubt that this will last. Indeed, the authorities are likely to find themselves in an awkward position by the end of the year as growth slows, and a …
The rally in financial markets since the start of the year has lost some steam in recent weeks. Most stock markets have fallen by around 2-3% since the start of the month and most currencies lost a little ground against both the dollar and the euro …
28th March 2012
Central banks in both Hungary and Turkey kept interest rates unchanged today as the recent increase in market tensions snuffed out any hope of a shift towards looser policy. We expect the bias towards tighter policy to remain over the coming months. … …
27th March 2012
Poland is one of the few countries in Europe where consumer spending has made a significant positive contribution to growth in recent years. However, we think that actual retail sales may be growing at just under half the rate suggested by the official …
26th March 2012
We suspect that Hungary will ultimately turn to some form of default as a way out of its current debt problems. The alternative is further austerity – and while we expect Hungary to pursue this path for a little longer, we are not convinced that the …
23rd March 2012
The recent spike in oil prices will make it harder for Turkey to rein in its current account deficit. But there is more to Turkey’s current account shortfall than simply the high cost of energy imports. The main reason why the deficit has widened over the …
21st March 2012
The usual raft of monthly activity data, released earlier today, confirmed that Russia’s economy remains in a decent shape, helped by the recent rise in the oil price. As things stand, GDP seems on course to grow by around 4.0-4.5% y/y in Q1. With the …
20th March 2012
The wide dispersion of growth rates across Emerging Europe masks big differences in the fundamental health of the region’s economies. In this Watch we explain why looking at levels of GDP is a much better guide to relative performance – and future …
The IMF is highly unlikely to approve Ukraine’s request to restructure $3bn of loan repayments due this year, but the fact that the government is even considering such a move demonstrates the extent to which it is running out of options. … Ukraine is …
15th March 2012
February’s inflation data were stronger than expected across Emerging Europe, fuelling concerns that the recent jump in oil prices is feeding into higher headline inflation. But we think this reading of the data is misguided. Instead, headline inflation …
14th March 2012
Tensions in financial markets have eased in recent months, but the outlook for Emerging Europe remains challenging. We expect the region to grow by just 1.3% this year and 3.0% in 2013. This is well below consensus expectations. At a country level, Poland …
Victory for the left-wing populist Smer party in Slovakia’s parliamentary election this weekend is likely to cause alarm that the commitment to austerity is fraying. While it is undoubtedly necessary to rein in Slovakia’s budget deficit over the …
12th March 2012
Final GDP data for Central and South Eastern Europe reinforced the view that Q4 was perhaps not as bad as we might have feared – growth accelerated in Poland and Slovakia and even the beleaguered Hungarian economy grew. However, there were a few common …
9th March 2012
Today the National Bank of Poland (NBP) pushed up its 2012 inflation forecast which, on the face of it, is likely to provide further support to the argument that any move in interest rates this year is more likely to be up than down. By contrast, we think …
7th March 2012
The notion that the Hungarian government can prevent a future sell-off in the forint simply by reviving talk of an IMF deal in times of market stress seems hopelessly misplaced. Our view remains that a combination of a fragile banking sector, unorthodox …
The numerous benefits of high oil prices for the Russian economy have concealed the bigger picture that over the past decade they have also served as a hindrance to much-needed political and economic reform, and hence, faster growth. … Why would Russia …
6th March 2012
The widespread assumption among investors that Vladimir Putin’s decisive victory in yesterday’s presidential election will deliver stability to Russia’s economy and its financial markets seems misplaced. Indeed, increasing strains in Russia’s growth …
5th March 2012
The surge in oil prices is unlikely to have a major impact on inflation in Emerging Europe but the impact on growth could be more significant. Ukraine and the Baltic States appear most vulnerable on this front. … Spike in oil prices is a bigger risk to …
2nd March 2012
February’s PMI data suggest that the slump in Czech and Hungarian manufacturing seen towards the end of last year has bottomed out. But while output is no longer falling, manufacturing in both countries and, indeed, across the region more generally does …
1st March 2012
Polish Q4 GDP data confirmed that the economy survived the slump in euro-zone demand at the end of last year relatively unscathed – unlike the rest of Central Europe. Nonetheless, with less scope for policy response now than in 2008/09, we remain …
The decision by the National Bank of Hungary (NBH) today to keep interest rates on hold at 7% was widely expected, with a narrow majority of policymakers now seemingly willing to wait and see whether or not the government can strike a new deal with the …
28th February 2012
With just over a week to go to Russia’s presidential election, the markets seem to have shrugged off the possibility of a fresh wave of civil unrest following the poll. Equities are up 20% since the start of the year, and the ruble is up 8% against the …
24th February 2012
The raft of Q4 GDP data released over the past month showed that growth slowed pretty much everywhere in Emerging Europe. The Czech Republic became the first economy in the region to fall back into a recession while even Poland saw a marked slowdown. …
23rd February 2012
We estimate that, if fully implemented, the various pledges made by PM Putin over the past couple of months would cause government spending to rise by Rb4.8trn by 2018 (equivalent to 4-5% of GDP). This in turn could push the “break even” oil price needed …
21st February 2012
The Turkish central bank’s (CBRT’s) decision today to lower the upper bound of its interest rate “corridor” suggests that it is increasingly confident of achieving a gradual adjustment in the current account deficit against the backdrop of improving …
Hungary’s government left it late to reply to the EC’s decision to start infringement proceedings. But the fact that it has done so, coupled with conciliatory comments from PM Orban, has raised hopes that a deal with the EU/IMF can be reached quickly. We …
17th February 2012
January’s inflation data in Emerging Europe has been a particularly mixed bunch, reflecting the impact of various indirect tax changes as well as the tail end of the commodity price shock a year ago. But once we strip out tax effects as well as food and …
16th February 2012
The “collateralised credit facility” unveiled by the National Bank of Hungary today may help to ease the maturity mismatch between banks’ assets and liabilities but it will do nothing to address the fundamental problem holding back credit growth in …
15th February 2012
Fears that euro-zone banks might suddenly withdraw their funding to subsidiaries in Emerging Europe have eased markedly over the past month, due in large part to the success of the ECB’s long-term refinancing operation (LTRO) in reducing strains in …
The raft of fourth quarter GDP data released this morning contained something for everyone: while Hungary defied the odds and grew in the final quarter of the year, the Czech economy contracted, making it the first in the region to slip back into …
Signs that Turkey’s current account deficit is narrowing, coupled with a marked improvement in global financing conditions, have raised hopes that it may be able to put its balance of payments on a sustainable footing without enduring a complete collapse …
13th February 2012
A raft of Q4 GDP data for Emerging Europe, due next week, is likely to show that growth slowed sharply across the region. It appears that the Czech economy ended 2011 in recession and the Hungarian economy contracted sharply over the quarter. The good …
10th February 2012
The improvement in global risk appetite over the past couple of months has raised hopes that Ukraine will be able to muddle through 2012 in order to meet its significant external financing needs without having to return to the IMF. We’re not yet …
7th February 2012
The economies of Asia and Latin America should be able to weather any financial contagion stemming from Europe’s debt crisis. But the economies of emerging Europe – notably Hungary, Turkey and the Balkan countries – look far more vulnerable to possible …
6th February 2012
It goes without saying that today’s resignation of the Romanian Prime Minister, Emil Boc, in response to growing public discontent with austerity, is likely to weigh heavily on the country’s financial markets over the next day or so. A much bigger …
December’s trade data provide the clearest evidence yet that the boom in Turkish domestic demand seen over the past couple of years has come to an abrupt halt. … Turkish boom hits the …
3rd February 2012
Currency concerns remain the key driver of interest rate decisions in Emerging Europe. The recent stability of the leu provided scope for Romanian policymakers to cut rates today. But in the Czech Republic, rates were kept on hold. The koruna has been one …
2nd February 2012
January’s manufacturing PMI data provide some evidence that the slump in industry in Emerging Europe’s most open economies is bottoming out. However, the Czech and Hungarian readings are still consistent with a shallow recession while manufacturing in the …
1st February 2012
Today’s estimate of 2011 GDP growth for Russia surprised on the upside, but the underlying data reveal a growing reliance on high oil prices to sustain the current rate of expansion. We continue to expect a sharp slowdown in growth over the coming years. …
31st January 2012
News that Lithuania’s economy contracted in the final quarter of last year dents the Baltic States’ image as a poster child for austerity as a means of restoring competitiveness and repairing balance sheets. … Baltic States: still the poster child for …
30th January 2012
Russia’s economy appears to have ended 2011 on a high note. Our estimates suggest that GDP grew by 5.0% y/y in Q4 – a slight improvement on 4.8% y/y in Q3. Even so, a combination of falling oil prices, tighter credit conditions and weaker external demand …
27th January 2012
Although today’s preliminary estimate of 2011 GDP growth surprised on the upside, the Polish economy slowed in the fourth quarter of last year. Poland is better placed than its neighbours to weather the fallout from Europe’s debt crisis, but it is still …
Recent comments from central bankers suggest that inflation is still high on the list of concerns for policymakers in the region. However, the unwinding of the last year’s commodity price shock, coupled with a slowdown in growth, should ensure that …
26th January 2012
The improvement in global risk appetite seen in recent weeks has ensured that financial markets across Emerging Europe have enjoyed a decent start to 2012. Yet we remain doubtful that this rebound can be sustained. After all, despite some glimmers of hope …
25th January 2012
The National Bank of Hungary (NBH) kept interest rates on hold today on the back of easing strains in the financial markets. This has come against the backdrop of talks with the IMF and EU apparently getting back on track, coupled with a general recovery …
24th January 2012
Despite the recent rally in the lira and signs that Turkey’s current account deficit is starting to narrow, the reduction in effective interest rates seen over the past few weeks is likely to prove temporary. We expect market interest rates to return to …
This is the first edition of our new monthly publication Emerging Europe Watch. This will summarise the major talking points in the region and preview key data and events. In this issue we look at Hungary’s debt crisis – and explain why we think things …
18th January 2012
Yesterday’s “Vienna Initiative” meeting adds to our fears that euro-zone policymakers are now less willing to step in to help Emerging Europe than in 2008/09. Of course, much depends on how events pan out in the euro-zone, but we remain of the view that a …
17th January 2012
In a Focus piece last month we outlined three possible ways in which the political situation in Russia might develop. Although it is still too early to say with any certainty how events will play out, all the signs are that our central scenario is …
