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Optimism about a shift towards more orthodox economic policymaking in Turkey has taken hold following the appointment of Mehmet Simsek to the cabinet this weekend. Recent developments look encouraging but the next big test will be whether President …
5th June 2023
The re-election of President Erdogan has raised concerns about a possible sovereign default. We think this risk looks low for now, but it would become a bigger threat in the coming years if the current policy mix continues, macro imbalances worsen and …
1st June 2023
President Erdogan looks set to secure victory in the second round of Turkey’s presidential election on 28 th May. This Update sets out how we think this would play out in Turkey’s financial markets this year: in short, we think that measures of Turkey’s …
25th May 2023
Hungary’s central bank (MNB) cut the interest rate on its one-day deposit tender at today’s meeting, from 18% to 17%, and this is likely to be followed by further cuts in the coming months, with the central bank’s key policy rates returning to single …
23rd May 2023
The Bank of Israel (BoI) delivered another 25bp interest rate hike, to 4.75%, at today’s meeting and did not offer any guidance as to whether this would be the last in the cycle. On balance, we think the central bank will deliver one more 25bp hike, to …
22nd May 2023
Over the past couple of weeks we have held a series of roundtable discussions with clients across Asia and North America on the outlook for EMs. In this Update we provide our thoughts on the recurring questions that we received, including on China’s …
19th May 2023
Economies across Central and Eastern Europe (CEE) have significantly underperformed the euro-zone and the rest of the world in recent quarters, which has its roots in the scale of the inflation shock that the region suffered and the impact on domestic …
18th May 2023
Turkey’s presidential election on Sunday was close, but Erdogan performed better than recent polls had suggested and he now has the edge ahead of a second round run-off on 28 th May. Hopes of an opposition victory and a return to orthodox policymaking …
15th May 2023
Note: We discussed Turkey’s election in an online briefing on 10th May. Watch it here . There’s a lot of optimism that the opposition will emerge victorious in Turkey’s elections, which would pave the way for a return to orthodox economic policy. Were …
10th May 2023
The idea of a new BRICS currency to settle trade or hold in reserves instead of the dollar has been doing the rounds recently. This could be modelled on the IMF’s Special Drawing Rights. But getting India on board with China would be difficult. And if the …
4th May 2023
The Czech central bank (CNB) left its main policy rate on hold at 7.00% as expected today, but it looks like policymakers set out to strengthen their hawkish rhetoric and downplay expectations of an imminent cut in interest rates. The message was loud and …
3rd May 2023
Note: We'll be discussing Turkey's election in an online briefing at 09:00 EDT/14:00 BST on 10th May . Register here . Parliamentary and presidential elections on 14 th May will make or break macroeconomic stability in Turkey. As things stand it looks …
The Hungarian central bank (MNB) slashed the upper end of its interest rate corridor today by 450bp, to 20.50% and, while this move alone won’t loosen monetary conditions, it is likely to be followed by cuts to the effective policy rate (the overnight …
25th April 2023
Large current account deficits across CEE have started to narrow in recent months and we think that this will continue as slowing economies and lower energy prices shrink import bills. This will reduce vulnerabilities, but external risks and currency …
20th April 2023
Romania's economy has outperformed its peers in Central and Eastern Europe (CEE) over the past year, but domestic demand looks unsustainably strong and a period of weaker growth will be needed to reduce the large current account deficit. We forecast the …
19th April 2023
Although the Turkish lira is at its weakest ever level against the US dollar, it would have fallen far further by now were it not for intervention by policymakers. We anticipate that the currency will depreciate sharply before long against a backdrop of …
13th April 2023
We’re not convinced by the arguments currently doing the rounds that military spending in Russia artificially boosted GDP in a significant way last year. While military spending has increased further this year and manufacturing in military-oriented …
12th April 2023
Israel’s central bank (BoI) raised its policy rate by a smaller 25bp, to 4.50%, as expected today and its communications sounded slightly less hawkish than at its previous meeting. Inflation pressures are likely to remain strong this year, but the door …
3rd April 2023
Turkey’s banking sector has been one of the weak links in the EM world in recent years due to its very high external debt burden. The good news is that banks have paid down these external debts and built up their FX liquidity buffers since 2018. This has …
22nd March 2023
While the Credit Suisse rescue might draw a line under that particular institution’s problems, it is clear that confidence in the financial sector overall is still extremely fragile. So regardless of whether more financial institutions run into trouble, …
20th March 2023
A key channel through which emerging markets could be affected by the strains in the global banking sector is if lending by foreign banks falls sharply. On this front, EMs’ vulnerabilities have eased since the Global Financial Crisis. But there are still …
16th March 2023
At the time of writing, financial markets appear to be stabilising after the turmoil caused by the collapse of SVB. And it doesn’t look like EMs have suffered large capital outflows or strains in their banking sectors. If this relatively benign scenario …
14th March 2023
The National Bank of Poland (NBP) left its main policy rate on hold as expected today, at 6.75%, and we don’t think policymakers will rule out further rate hikes just yet (today’s statement gave little away in terms of guidance). But with inflation likely …
8th March 2023
The very high household saving rate in Czechia and the sharp fall in inflation we expect there this year means there is scope for consumer spending to recover over the coming quarters. But we think consumers will still exercise caution and that a …
The Israeli shekel has been amongst the worst performing currencies over the past month amid a rise in risk premia in Israel. We think it may remain under pressure against the US dollar over the coming months; but we doubt it will keep underperforming its …
1st March 2023
Hungary’s central bank (MNB) reiterated the message that it’s unlikely to cut its base rate anytime soon, when it left that rate on hold again today (at 13.00%). That said, the MNB offered some signs that it may be close to phasing out its market …
28th February 2023
Last week’s European Court of Justice (ECJ) opinion on Poland’s Swiss franc mortgage dispute dealt yet another blow to Poland’s banking sector and will expose those banks with large FX loan portfolios. The sector as a whole looks strong, but many banks …
23rd February 2023
The sharp fall in European electricity prices sets the stage for a recovery in metals output across the region. As power prices are still historically high and unlikely to fall that much further, however, the potential for a full and rapid recovery is …
22nd February 2023
Russia’s budget deficit has widened sharply in recent months and is likely to remain under pressure amid lower oil prices and rising military spending. The government is unlikely to experience severe fiscal strains this year, but the public finances are …
21st February 2023
The Bank of Israel (BoI) hiked interest rates by another 50bp, to 4.25%, today and while it continued to point to signs of slower growth, it sounded more concerned about the strength of inflation than it did at its last meeting. It now looks likely that …
20th February 2023
Signs of softening labour markets across Central and Eastern Europe (CEE) support our view that intense wage pressures in the region will ease in the coming months. Even so, we still think that wage growth will generally remain above levels consistent …
15th February 2023
The recent earthquakes that hit Turkey and Syria are a human tragedy and foremost in everyone’s minds. Nonetheless, the financial markets will also need to bear in mind the economic cost and, to the extent that this provides some comfort, the damage to …
7th February 2023
The hawkish tone struck by the Czech National Bank (CNB) as it left its policy rate on hold again today, at 7.00%, isn’t prompting us to abandon our view that rates will be cut around the middle of this year. That said, we have now pushed the timing of …
2nd February 2023
Concerns over democratic backsliding and an escalation of the Israeli-Palestinian conflict associated with Israel’s new far-right government won’t necessarily mean that foreign investment into Israel dries up or that the economy suffers in the short run. …
1st February 2023
Moderating core price pressures, the continued fall in inflation expectations and the sharp decline in wholesale natural gas prices mean we think inflation in Central and Eastern Europe (CEE) will fall a bit more quickly in 2023 than we had anticipated a …
19th January 2023
The surge in FDI inflows to a 15-year high in Central and Eastern Europe (CEE) last year will partly unwind this year given the weaker global macro backdrop. But we think that a large part of the increase reflected structural forces, which will keep FDI …
17th January 2023
Europe’s energy crisis, sky-high rates of inflation and Ukraine’s reconstruction were among the biggest topics of conversation at Euromoney’s Central and Eastern European (CEE) forum in Vienna this week. There seems to be a widespread view now that …
12th January 2023
This is part of a series of reports outlining our key macro and market calls for 2023. Click here to view the full series. Our latest EM Outlook can be found here . EMs will experience one of the broadest slowdowns in GDP growth in 2023 since the 1990s. …
15th December 2022
A widening of Russia’s budget deficit next year to 2.5% of GDP will increase pressure on the government to keep a firm grip on non-military spending. But it should be able to finance the shortfall from its savings and domestic bond issuance. The bigger …
14th December 2022
Headline inflation in Central and Eastern Europe (CEE) will peak in most countries in the next few months, at around 20% y/y, and should fall to single-digits across the region by end-2023. But we think this initial large disinflation process will give …
7th December 2022
There are only a few days to go until the next packages of EU sanctions on Russia targeting its oil trade come into force. There are a few key details still left to be finalised, but it seems to us that disruption to Russia’s oil trade and production is …
2nd December 2022
Croatia’s adoption of the euro on 1 st January 2023 is likely to bring only small benefits to the economy given how widely used the euro already is in the country. Even so, we think prospects for Croatia’s economy remain bright and expect it to outperform …
30th November 2022
Industry across Central and Eastern Europe (CEE) has held up better than might have been expected this year given the extent of the energy price shock. While output in energy-intensive industry has declined by 5-10% this year, that has been more than …
29th November 2022
The Bank of Israel (BoI) slowed down the pace of tightening today with a 50bp rate hike, to 3.25%, as it emphasised the tightening delivered so far and the early signs that economic activity is slowing. We think it will end its tightening cycle early next …
21st November 2022
Romania’s current account deficit, which is among the largest in the EM world, has continued to widen this year and now exceeds 9% of GDP. It is reassuring that much of the deficit is currently being financed by relatively stable forms of capital inflows. …
14th November 2022
The Polish central bank’s dovish monetary policy stance is becoming increasingly at odds with the severity of inflation pressures and this reinforces our long-held view that inflation won’t return to the central bank’s target until 2025 at the earliest. …
8th November 2022
The surge in energy prices this year has led to a sharp widening in Hungary’s current account deficit and increased its dependence on foreign capital inflows. While the central bank (MNB) seems to have put a floor under the currency recently, it remains …
3rd November 2022
Policymakers in Turkey have doubled down on their new economic model of “lira-isation” by pursuing more extreme de-dollarisation policies in recent months. These appear to be having an impact in terms of stemming lira depreciation. But the central bank …
20th October 2022
Central banks have the tools to deal with liquidity crises arising from rising interest rates and falling asset prices. Instead, the bigger threat is that higher interest rates produce large and simultaneous falls in asset prices that threaten the …
11th October 2022
Higher interest rates are already having an impact in CEE and a large part of the tightening of monetary conditions has yet to feed through. This will add to the headwinds facing growth in the coming quarters. Central banks have raised interest rates by …
29th September 2022