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The statement accompanying today’s decision by the Turkish central bank (CBRT) to leave its policy rate at 19.00% suggests that policymakers are (for now) standing up to political pressure to lower interest rates. But we still think that an easing cycle …
17th June 2021
A further expansion of gas production is likely to boost Israel’s current account surplus by an additional 0.4% of GDP per annum by 2025. This will put upwards pressure on the real exchange rate, but Israel’s export composition means that this should not …
16th June 2021
Russian household spending looks set to rebound strongly this year as “excess” savings are drawn down, credit continues to expand, government support boosts incomes, and the labour market recovers. This will keep inflation elevated for a while. But some …
15th June 2021
Russia’s central bank (CBR) raised its policy rate by another 50bp, to 5.50%, at today’s meeting and the accompanying communications delivered a much more hawkish tone about inflation risks and the need to raise interest rates further. With inflation set …
11th June 2021
We now expect interest rates to rise across Central and Eastern Europe in the coming years and for all the major currencies to strengthen against the euro, with the Czech koruna and Polish zloty faring best. Until recently, currencies in Central and …
10th June 2021
While the composition of Central and Eastern European (CEE) exports is set to change over the coming quarters as some of the effects of the pandemic unwind, we forecast that export growth will remain strong, not least because of the solid economic …
The strength of Romania’s economy in Q1 and the positive outlook for growth over the coming quarters means that we now expect GDP to expand by 6.8% this year (compared to 4.8% previously) . The second estimate of Q1 GDP released today confirmed that …
8th June 2021
Price pressures in Central Europe are building from a broad range of sources and, while most of these are likely to be temporary, the issue is that countries were experiencing stubbornly high inflation before these pressures emerged. With output gaps set …
2nd June 2021
The breakdown of Q1 GDP data showed that strong domestic demand supported expansions in Hungary and Poland, despite severe virus waves, whereas another fall in household spending held back Czechia’s recovery. Growth will gather steam from Q2 onwards, but …
1st June 2021
The announcement of a ceasefire between Israel and Hamas removes one of the key uncertainties about the outlook for Israel’s economy and we maintain our forecast for a rapid recovery in GDP to take hold from Q2 onwards, inflation to remain low and the …
21st May 2021
The “Polish Deal” outlined by the ruling Law and Justice party over the weekend strengthens the shift in policy since 2015 towards higher social welfare spending and support for families. Fiscal policy looks set to be looser over the next few years to the …
17th May 2021
Turkey’s government has lifted a three-week national lockdown today and this should pave the way for a recovery over the coming months. But the hit to activity during the lockdown means that the economy is likely to record a contraction over Q2 as a …
The sharp fall in virus cases and increase in the rate of vaccinations since March means that a sustained economic recovery in Central and Eastern Europe looks set to begin over the coming months. But, the latest decline in infections in Turkey is …
12th May 2021
The Czech National Bank (CNB) left its two-week repo rate on hold at 0.25% today and backtracked on its recent dovish guidance about the timing of policy tightening. We expect a first 25bp interest rate hike in November, but the risks are becoming …
6th May 2021
The re-opening of Israel’s economy since March has driven a sharp tightening of labour market conditions and a growing share of firms are reporting labour shortages. This appears to be concentrated in the leisure and hospitality sectors where government …
Turkey’s central bank didn’t spring any surprises and left its one-week repo rate on hold at 19.00% today and, while the accompanying statement maintained a hawkish tone, policymakers left the door open for the start of an easing cycle over the coming …
Russia’s central bank (CBR) hiked its policy rate by 50bp, to 5.00%, at today’s meeting and the accompanying statement strengthened the central bank’s hawkish message about the need for additional tightening to bring inflation back to target. We think …
23rd April 2021
The decision by the US to impose sanctions on newly-issued Russian sovereign debt has caused a sell-off in the ruble and sovereign bonds today, but we think any further market fallout or the macroeconomic impact will be limited unless sanctions are …
15th April 2021
The decision by the Turkish central bank (CBRT) to leave its policy rate at 19.00% was accompanied by reassuring language that the MPC, under new governor Sahap Kavciouglu, aims to bring down inflation. But the language also suggests that they are looking …
The resilience of tax receipts and the improved outlook for oil and gas revenues should provide scope for Russia’s government to soften its grip on the public finances and ease policy over the next few years. We expect an additional 2.0% of GDP of …
13th April 2021
Turkey’s large external vulnerabilities mean that aggressive rate cuts by the central bank (CBRT) would run the risk of sharp and destabilising falls in the lira. A probable next step by policymakers would be a turn towards capital controls. But we doubt …
8th April 2021
Past experience suggests that, with inflation near a peak and the economy slowing (alongside pressure from President Erdogan for lower interest rates), Turkey’s central bank will push ahead and ease monetary conditions in the coming months . Last week we …
31st March 2021
The upheaval at Turkey’s central bank means that we now expect a 200bp interest rate cut next month followed by further aggressive easing in the second half of 2021. But the result is that inflation will stay high and the lira will fall much further, to …
26th March 2021
The replacement at the helm of Turkey’s central bank is particularly worrying against a backdrop of a dire balance of payments position, large dependence on foreign capital inflows and the central bank’s severely depleted foreign exchange reserves. If …
23rd March 2021
Hungary’s central bank (MNB) left its key interest rates on hold today but the tone of the communications could not have been much more hawkish without raising interest rates. The MNB is defending its view that inflation will settle back to the 3% target …
The abrupt sacking of Turkey’s central bank (CBRT) governor on Friday has triggered sharp falls in the lira and a tightening of external financing conditions. The banking sector is a key source of vulnerability and arguably looks more exposed than it was …
22nd March 2021
The shock decision by Turkey’s President Erdogan to sack central bank governor Naci Agbal late on Friday is likely to trigger large falls in the lira when markets open on Monday. It looks like the central bank’s (CBRT’s) efforts to fight the country’s …
20th March 2021
Russia’s central bank (CBR) unexpectedly hiked its key policy rate by 25bp to 4.50% at today’s meeting in response to the recent surge in inflation and the accompanying communications sent a strong signal that it is prepared for an aggressive tightening …
19th March 2021
Turkey’s central bank didn’t disappoint investors, delivering a larger-than-expected 200bp interest rate hike (to 19.00%) today, and we think that it will keep monetary conditions tighter than most expect over the next couple of years. That will provide a …
18th March 2021
The renewed surge in virus cases and tightening of restrictions across Central Europe will deal a heavy blow to the recovery in the first half of this year. Meanwhile, slow vaccine rollouts mean that the ‘vaccine bounce’ that we had anticipated from Q2 …
17th March 2021
Turkey’s central bank (CBRT) looks set to hike interest rates further this week, and the experience from other EMs suggests that it will need to keep real interest rates elevated for several years to bring inflation down on a sustained basis. Lowering …
15th March 2021
The disruption to auto production caused by semiconductor shortages is yet another reason (alongside tight COVID-19 restrictions) to expect growth in Central and Eastern Europe (CEE) to struggle in H1 2021 . Since late 2020, global shortages of …
10th March 2021
A series of strong inflation readings in Russia have put the central bank’s ability to meet its inflation target over the next year under threat and brought forward the prospect of monetary tightening. We think the central bank will use its meeting on 19 …
The Polish central bank’s latest forecasts, published this afternoon, tell a story in which the economic recovery will strengthen over the coming years and inflationary pressures will pick up strongly. But we think that policymakers will tolerate higher …
3rd March 2021
The full breakdown of Q4 GDP data for Central Europe showed that net trade exerted a drag on growth in Poland while it provided a boost to Czechia and Hungary. But looking ahead, mounting headwinds to the recovery mean that we now expect GDP to grow only …
2nd March 2021
Labour markets across Central and Eastern Europe (CEE) have held up well since the start of the pandemic and we think this will continue over the next few years, which will support recoveries across the region. One key risk to this view is that government …
24th February 2021
Turkey’s central bank left its policy rate unchanged at 17.00% at today’s MPC meeting and the hawkish tone in the statement, including a commitment to bring inflation back to the 5% target, supports our view that an easing cycle will arrive later and will …
18th February 2021
The shift in policymaking at Turkey’s central bank (CBRT) has supported a rally in local financial markets over the past few months and we think this has further to run. We now expect the Turkish lira to end this year at 6.25/$ (previously 7.00/$). A …
17th February 2021
Russia’s central bank (CBR) left its key policy rate on hold at 4.25% today and the hawkish message about pro-inflationary risks means that there is no room for further easing. The CBR set the groundwork for a return of interest rates back to a neutral …
12th February 2021
Stubbornly high inflation and concerns about a weaker exchange rate mean that Hungary’s central bank (MNB) will keep its powder dry in the next few months. But we think that inflation will ease over the first half of 2021, which should create scope for …
5th February 2021
The waves of protests that have taken place across Russia in recent weeks pose the biggest challenge to President Putin in close to a decade and have put a risk premium on the ruble. The government is likely to loosen fiscal policy to boost its support, …
4th February 2021
Turkey’s central bank left its benchmark one-week repo rate unchanged at 17.00% at today’s MPC meeting as concerns about the faltering economic recovery took priority. But the hawkish tone on inflation supports our view that rates will be unchanged …
21st January 2021
The rollout of COVID-19 vaccines has slowly picked up across the region and we think governments will ease most restrictions by the middle of this year. But there is a clear risk that vaccine rollout progresses more slowly and that the bar for easing …
20th January 2021
The shift towards orthodox policymaking at Turkey’s central bank has supported a rally in the lira and, so long as the policy shift sticks (as seems increasingly likely) and the external environment remains supportive, we think that the currency’s …
12th January 2021
The Polish central bank’s (NBP’s) concerns about the strength of the zloty are likely to prompt it to intervene more aggressively in the FX market and deliver a 10bp interest rate cut, to 0.00%, most likely in March. But there is a growing risk that the …
6th January 2021
The central bank of Russia (CBR) left its key policy rate unchanged at 4.25% as expected today but the accompanying communications delivered a clear hawkish shift. With headline inflation likely to remain high into 2021, interest rates are set to stay on …
18th December 2020
2020 has been a year full of surprises and in this Update we outline key areas to watch next year. Early vaccine distribution will pave the way for a rapid economic recovery, but disinflation forces are likely to become stronger in Central Europe and …
15th December 2020
Parliamentary elections in Romania that took place on Sunday look set to result in the incumbent centre-right PNL party forming a new coalition government. A new PNL-led coalition would probably pursue a more conservative fiscal stance over the coming …
10th December 2020
The success of the Russian government’s preferential mortgage scheme this year has prompted concerns that a bubble might be forming in Russia’s housing market, but we think this risk is some way off. In fact, low interest rates and an expansion of the …
Failure of Poland and Hungary to reach an agreement with the EU over the veto of the bloc’s budget would have severe political and economic consequences if funds were withheld. Even if a deal is agreed, perhaps as soon as the EU Council meeting on 10-11 …
9th December 2020