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The view that Emerging Europe is not as vulnerable to an external financing crisis as in 2008/09 appears misplaced. Although current account deficits have, in most cases, narrowed sharply, total external financing requirements (including external debt …
13th October 2011
Victory for the governing Civic Platform Party in yesterday’s parliamentary elections in Poland will be welcomed as a sign of business as usual by the markets. But with external headwinds building and little room for policy stimulus at home, we fear that …
11th October 2011
Fresh concerns over the health of the Hungarian banking system have risen following the government’s policy to allow households to repay FX mortgages at preferential exchange rates. Our best estimate is that banks should be able to absorb this without a …
6th October 2011
With elections due on Sunday, the campaign of the governing Civic Platform party has understandably focussed on its economic credentials. After all, Poland was the only country in the EU to avoid recession in 2009. Yet in many respects the Polish economy …
5th October 2011
September’s PMI surveys confirmed that manufacturing growth across the region has stalled. With export-led industry being the main (and in some cases only) driver of growth, this adds further weight to our below-consensus view of the region’s growth …
4th October 2011
In light of recent events, this Update provides a brief snapshot of the health of Russia’s public finances. The short point is that while public debt is very low, the budget position is increasingly unsustainable. … Russia's balance sheet …
30th September 2011
The past couple of days have seen a rebound in the region’s financial markets, but this has reversed only a fraction of the losses seen over the past month. Most equity markets, for example, are still down by around 10% on the start of September, and …
29th September 2011
This weekend’s news that current President Medvedev will step aside to allow Vladimir Putin to run for the presidency at next year’s elections has raised hopes that lower political uncertainty will help to ease capital flight from Russia. In reality, …
27th September 2011
The latest turmoil in markets and the rapidly deteriorating outlook for global and regional growth mean that fears about rising inflation, which dominated the policy debate over the first half of this year, are now a distant memory. Instead, the focus has …
24th September 2011
The vast bulk of growth in Emerging Europe since the fall of communism can be explained by the better allocation of resources that has resulted from the transition from central planning to a market economy. However, the most important lesson from the past …
22nd September 2011
September’s activity data suggest that Russia is heading for a strong economic performance in the second half of 2011. What’s more, with both the consumer sector and industry picking up, growth looks set to be more broad-based. We estimate that GDP …
20th September 2011
The outlook for inflation in Hungary is not as bad as recent developments suggest, but the plunging forint may still force the National Bank into a defensive rate hike within the next three months. … Should we be worried about inflation in …
The deepening crisis in the euro-zone reinforces our view that growth in Emerging Europe will slow by more than most expect over the next year. We expect the region’s economy as a whole to expand by just 1.8% in 2012, which encompasses a recession in …
16th September 2011
Today’s decision by the Central Bank of Russia (CBR) to lower its overnight repo rate and at the same time raise its overnight deposit rate is an attempt to wrest back control over market interest rates, and may be a sign that policymakers are preparing …
15th September 2011
On the face of it, Turkish Q2 GDP data – which surprised on the upside – is positive news. However, it merely confirms our view that the Turkish economy is overheating and it is now more likely than not that a period of good growth will end in recession. …
13th September 2011
July’s Industrial production data, although not as bad as feared, were poor nonetheless and confirmed that growth is weakening across Central and Eastern Europe. What’s more, the disappointing PMIs for August released last week coupled with the slump in …
10th September 2011
The Polish central bank’s decision to leave interest rates on hold comes as little surprise given the recent signs of a domestic slowdown and lower demand from abroad. With inflation set to ease further in the coming months, we think the Bank’s next move …
8th September 2011
The Hungarian government yesterday afternoon announced measures to raise an extra HUF 100bn in revenues as lower than expected growth reduced the chances of meeting the budget target. The government also announced more cautious growth forecasts on which …
The Swiss National Bank’s decision to effectively peg the Swiss franc to the euro will provide some qualified relief to Croatia, Hungary and Poland, which have significant amounts of Swiss franc debt. However, compared with the rates at which many of …
7th September 2011
Turkey’s economy looks increasingly in danger of going from boom to bust. Rapid growth in domestic demand has led to a surge in imports and a widening current account deficit that, in light of recent market turbulence, looks increasingly unsustainable. We …
3rd September 2011
August’s PMI surveys brought further evidence – if any were needed – that industry in Central and Eastern Europe is slowing sharply. Given that this has been the main driver of growth over the past year or so, it’s becoming increasingly difficult to …
2nd September 2011
Polish growth in Q2 remained relatively robust but we expect it to slow significantly in 2012 and 2013 to a below-consensus 3% y/y as external headwinds build. Having front-loaded monetary tightening this year, the central bank has scope to loosen policy …
31st August 2011
At first sight Russia’s public finances appear a picture of health when compared to those in the developed world. But a growing dependence on high and rising oil prices as a source of revenue is a major, and often overlooked, vulnerability. Indeed, out …
26th August 2011
Growth clouds are gathering over Emerging Europe. Leading indicators, such the manufacturing PMIs, have weakened across the board, growth in key export markets (notably Germany) is cooling and Q2 GDP data released over the past month suggest that the …
25th August 2011
Turkish policymakers left interest rates unchanged today, but hinted that further policy loosening may be on the way. Yet even if additional stimulus is ultimately justified by a renewed downturn in the world economy, Turkey’s large current account …
24th August 2011
This report is only available as a PDF. Click to download. … Case for rate cuts set to strengthen …
19th August 2011
Today’s Q2 GDP data show that the pace of recovery across the region was slowing even before the recent turmoil in financial markets. With external demand weakening and domestic demand still subdued, we remain comfortable with our below consensus …
17th August 2011
In the wake of the recent market turmoil, the immediate priority for policymakers is to stabilise the region’s currencies. But if required central banks are more likely to rely on verbal or direct intervention in the foreign exchange markets than …
13th August 2011
The latest surge in the Swiss franc has turned the spotlight once again on Emerging Europe’s foreign currency debt problem. As it happens, only Hungary, Poland and Croatia have significant amounts of Swiss franc debt. But for these countries, particularly …
12th August 2011
The fact that Russian GDP growth slowed from 4.1% y/y in Q1 to 3.4% y/y in Q2 is particularly worrying since it suggests that the economy was losing steam even before the recent turmoil in financial markets. This supports our long-standing view that the …
The tumultuous past week in the financial markets has fuelled concerns about the pace of the global, and especially the European, recovery. The Czech economy will be hit harder than most by a slowdown in the euro-zone’s core and we think it will struggle …
10th August 2011
Despite benefiting from generally better fundamentals, no emerging market (EM) is immune from the deepening problems in the US and Europe. Growth everywhere is likely to slow over the next year and, while Asia should continue to outperform, we are …
9th August 2011
The decision by the Central Bank of Turkey to raise its overnight borrowing rate and cut its benchmark 7-day repo rate could do more harm than good: the rise in the overnight rate risks attracting short-term capital inflows, which could eventually prove …
5th August 2011
The Central Bank of Turkey has announced that the MPC will hold an (unscheduled) interim meeting tomorrow, which, it seems, is likely to result in fresh measures to prevent a disorderly adjustment in the lira. Top of the list of policy options is a hike …
4th August 2011
Leading indicators suggest that annual growth slowed in pretty much every economy in the region in Q2 of this year. Unfortunately, rather than being just a temporary blip, we think that this is a sign of things to come and expect growth to disappoint on …
3rd August 2011
The latest Manufacturing PMI data suggest that industrial production growth in the region all but ground to a halt in July. … Industrial production slows to a …
2nd August 2011
Inflation is close to peaking in most countries in Emerging Europe. Indeed, it may already have done so in Russia. … Inflation close to …
29th July 2011
The National Bank of Hungary is in a bind. On the one hand, growth remains pretty sluggish. But on the other, the high level of Swiss franc-denominated household debt limits the scope for, and the impact of, any cut in interest rates. We think that …
27th July 2011
Today’s decision by the Central Bank of Turkey to suspend its daily purchases of US$ should help to stabilise the lira in the very near term. But it does not tackle the underlying concern, namely Turkey’s widening current account deficit. This will …
26th July 2011
The prevailing view that Emerging Europe should be able to avoid contagion from the escalating crisis in the euro-zone could prove to be dangerously complacent. At the very least, strong trade ties should ensure that growth in the region slows over the …
22nd July 2011
Inflation fell sharply in most countries in the region last month, due in large part to a surprise drop in food prices. This appears to have been driven by one-off factors relating to the outbreak of e.coli in Germany. As such, we may see a bounce in food …
20th July 2011
Poland has become the latest country in the region to report slower than expected inflation for June. Once again, the sharp drop in food prices appears to have been caused by one-off factors relating to the outbreak of e.coli earlier this summer. But even …
14th July 2011
In contrast to governments in the euro-zone’s periphery, the economies of Emerging Europe are not facing a solvency crisis. However, large external financing requirements mean the region is vulnerable to a fresh liquidity squeeze – and with the crisis in …
13th July 2011
Although one-off factors such as the e.coli outbreak may be behind the sharp drop in prices of seasonal fruit and vegetables in June, today’s CPI data reveal few inflationary pressures in the region. This supports our view that interest rate rises will …
A decline in China's pig population at the turn of the year is now resulting in a surge in pork prices that probably pushed consumer price inflation above 6% y/y last month. Price pressures for non-food items have actually continued to ease, but headline …
9th July 2011
Poland’s economy remains in something of a ‘sweet spot’ for now, but recent upward revisions to the current account shortfall reinforce our long-standing concerns about the country’s twin deficits. In the near-term this is likely to limit any significant …
8th July 2011
Adding to dovish comments by monetary policy committee members, the statement following today’s decision to leave interest rates on hold in Poland points to a prolonged pause in rate changes. The central bank’s expectation that currently high inflation …
7th July 2011
Today’s retail sales data for the Czech Republic continue to point to subdued domestic demand and the likelihood of only modest economic growth over the next couple of years. With fiscal consolidation continuing and the labour market still weak, there is …
5th July 2011
June’s Manufacturing PMIs suggest that the previously impressive recovery in the region’s industrial sector is now losing steam and that price pressures are starting to ease. … Manufacturing growth slowing, price pressures …
2nd July 2011
Fears of a widespread bubble in emerging markets look overdone, but there are growing signs that rapid capital inflows are stoking problems in several countries. We think the biggest risks lie in Turkey and Brazil, where the threat of a sharp downturn in …
