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Inflation hits new highs across CEE Inflationary pressures continue to strengthen across Central and Eastern Europe, keeping the onus on central banks to tighten policy aggressively. October inflation data this week provided for ugly viewing. In Hungary, …
12th November 2021
Another strong rise in GDP, inflation pressures to persist The solid 2.1% q/q rise in Poland’s GDP in Q3 took the economy to almost 3% above its pre-pandemic level, marking one of the strongest recoveries across Europe. But capacity constraints are …
Another strong performance in Q3, but downside risks mounting Turkey’s activity data for September were the proverbial mixed bag with industrial production falling back but retail sales putting in another robust performance. On balance, the data suggest …
The phasing out of crisis support and strength of tax revenues have boosted Israel’s public finances and the conservative stance of last week’s budget will help to narrow the deficit towards 3% of GDP in 2022, although we don’t think this will derail the …
11th November 2021
The sharp tightening of monetary policy in the region will strengthen the preference for savings, dampen lending growth and raise debt servicing costs next year. It is plausible to think that higher interest rates could trim 0.5-0.8%-pts off GDP growth …
9th November 2021
You’re not dreaming: Israel passed a budget For the first time in more than three years, Israel’s government has brought some stability to the public finances by passing the 2021 and 2022 budgets. These are not game changers as far as fiscal policy is …
5th November 2021
Auto producers in Central and Eastern Europe (CEE) have experienced intermittent factory closures in the second half of this year and things may get worse before they get better. Motor vehicles production will remain stop-start until shortages of …
The Czech National Bank (CNB) shocked everyone with a 125bp interest rate hike at today’s meeting and while this was clearly intended to front-load tightening, the hawkish communications suggest that the tightening cycle still has some way to go. We …
4th November 2021
The National Bank of Poland’s (NBP) decision to raise its policy rate by a larger-than-expected 75bp to 1.25% alongside the upwards revision to its inflation forecast suggests to us that the NBP is taking the fight against inflation much more seriously …
3rd November 2021
Inflation jump to prompt further 75bp hike The further rise in Russian inflation to 8.1% y/y last month paves the way for the central bank to hike the one-week repo rate by another 75bp (to 8.25%) when it meets in December. The outturn was up from 7.4% …
The economic and political backdrop in Turkey is eerily similar to that which preceded the currency crisis in 2018, although one key difference now is that the lira doesn’t appear to be fundamentally misaligned. The upshot is that, even if the lira were …
Inflation rises again, but further rate cuts still seem likely Turkey’s headline inflation rate rose further in October to reach 19.9% y/y but the small drop in core inflation and political pressure on the central bank means that further interest rate …
Supply constraints take a greater toll on industry The manufacturing PMIs in October showed that supply disruptions took a greater toll at the start of Q4, with industrial production growth in Turkey slowing and Czech industry likely to have contracted …
1st November 2021
A strong end to Q3, but virus outbreak dampens outlook Russia’s economy enjoyed a strong end to Q3, but the country’s severe COVID-19 outbreak has clouded the outlook more recently and is likely to cause growth to soften in Q4. Russia’s industrial sector …
29th October 2021
Lira see-saws but CBRT more tolerant A diplomatic spat between Turkey and its Western allies this week was quickly resolved, but it highlighted how vulnerable the lira is to geopolitical developments. And comments from Turkey’s central bank governor …
Further rise in Polish inflation to prompt another rate hike The rise in Poland’s headline inflation rate to 6.8% y/y in October opens the door for the central bank to deliver a 25bp at next week’s MPC meeting. Elsewhere, Czechia’s economy performed a …
The surge in COVID-19 cases and deaths in Eastern Europe has prompted the re-imposition of restrictions and it looks like measures will be stepped up, weighing on recoveries in Q4. Tight restrictions may not remain in place for long across Central Europe, …
28th October 2021
Oil, gas and coal prices have reached multi-year highs in recent weeks and this Update takes a look at some of the implications for the region. In short, an improvement in Russia’s terms of trade has boosted its external position, the public finances and …
Sentiment softens at the start of Q4 The EC’s Economic Sentiment Indicators for October showed that sentiment in industry and services softened across most of Central and Eastern Europe at the start of Q4. With rising virus cases adding to existing …
COVID-19 outbreaks have surged across the region in the past month. Record high daily cases have been reported in Russia, Romania, Bulgaria and Latvia and infections are rising sharply elsewhere. Governments have tightened containment measures, including …
26th October 2021
A renewed wave of COVID-19 cases has prompted some governments to reimpose strict containment measures and talk of lockdowns is becoming more widespread. The downside risks to what are already strong headwinds facing the recovery are mounting. COVID-19 …
22nd October 2021
Russia’s central bank (CBR) stepped up the pace of its tightening cycle again at today’s meeting with a larger-than-expected 75bp interest rate hike, to 7.50%, and the hawkish tone of the accompanying communications suggest that further tightening will be …
Any remaining confidence in the credibility of Turkey’s central bank (CBRT) was shattered after today’s larger-than-expected 200bp interest rate cut, to 16.00%. The lira hit a fresh record low against the dollar and we think that it will continue to …
21st October 2021
Ending Q3 on a positive note The latest activity data suggest that Poland’s economy ended Q3 with solid momentum, and GDP is likely to have risen by 1.6% q/q (4.7% y/y) in Q3 as a whole. But with the re-opening boost fading and supply issues likely to …
Overview – The region has experienced a rapid recovery, but the re-opening boost has now faded and the region is likely to face stronger headwinds in the near term due to surging COVID-19 cases, rising inflation and supply disruptions. Central European …
20th October 2021
GDP in the Baltic States has already surpassed pre-pandemic levels and we expect this strength to be sustained, with growth outpacing Central Europe and the euro-zone as a whole over the coming years. This strong recovery will use up spare capacity fairly …
18th October 2021
Erdogan playing with fire in push for rate cuts After putting the final nails in the coffin of the Turkish central bank’s credibility with last month’s surprise interest rate cut, the grave started to be dug this week with the firing of three MPC members. …
15th October 2021
Inflation close to reaching a peak The further rise in Israeli inflation to 2.5% y/y in September contained no major surprises and we think it will ease towards the lower end of the central bank’s 1-3% target next year. Even so, with the recovery motoring …
Central and Eastern Europe is one of the regions of the world where we think that the risk of sustained higher inflation in the next few years is greatest. The Phillips curve is alive and we think the combination of a cyclical recovery in demand for …
13th October 2021
Economy bounces back from weak start to Q3 Turkey’s industrial sector bounced back in August following a weak start to the quarter and, while retail sales growth slowed, it looks like the economy recorded another robust increase in GDP in Q3. Industrial …
12th October 2021
Poland-EU tensions crank up a notch The decision this week by Poland’s Constitutional Court to rule that some EU laws are in conflict with the Polish Constitution has sent shockwaves through Europe. The ruling gets to the heart of the conflict over the …
8th October 2021
The Bank of Israel revised up its forecast for GDP growth at today’s meeting and struck a more hawkish tone on inflation as it announced that it will end its asset purchase programme later this year. This was in line with expectations, but Governor Yaron …
7th October 2021
Inflation hits a new high, tightening cycle may continue for longer Russian inflation accelerated to a fresh five-year high of 7.4% y/y in September and, while this was mainly driven by a sharp increase in food inflation, the central bank is likely to …
6th October 2021
The National Bank of Poland (NBP) unexpectedly hiked its policy rate by 40bp to 0.50% at today’s MPC meeting, but the accompanying communications were underwhelming and suggest that the rate hike was not as hawkish a move as might have been first …
The Czech parliamentary election that kicks off on Friday looks to be one of the most unpredictable for some time. A victory for the incumbent ANO party would continue the recent trend of loose fiscal policy and support GDP growth, but at the cost of …
The National Bank of Romania (NBR) raised its policy rate by 25bp to 1.50% at today’s meeting, and the backdrop of rising inflation, large twin deficits and currency weakness means that further rate hikes are likely to be delivered over the next 12 …
5th October 2021
Inflation rises, but further rate cuts still on the cards Turkey’s headline inflation rate rose further to 19.6% y/y in September and core inflation partially reversed its recent decline, but political pressure means that the central bank is likely to cut …
4th October 2021
Industry coming off the boil, but consumer demand remains strong Russia’s hard activity data for August showed that industry has continued to struggle while loose fiscal policy has supported consumer spending. We think that consumer demand should hold up …
1st October 2021
CEE: loose fiscal policy set to persist in 2022 Government budget drafts approved for 2022 this week in Czechia and Poland and further details of social support in Hungary suggest that fiscal policy will remain supportive of growth in Central Europe and …
Supply constraints continue to weigh on output The manufacturing PMIs for September provide additional signs that supply constraints continued to weigh on output in Central Europe, although it seems that price pressures eased further. The PMIs for Czechia …
The Czech National Bank (CNB) stepped up the pace of its tightening cycle with a 75bp interest rate hike, to 1.50%, at today’s meeting and its hawkish communications signalled that further aggressive hikes will be delivered in the coming months to tackle …
30th September 2021
Economies across Emerging Europe enjoyed a rapid rebound in Q2, but all the signs suggest that the recovery has come off the boil in Q3. Surveys of sentiment in services sectors have started to flatline and, in some cases, fall. What’s more, hard activity …
29th September 2021
Sentiment falls again as recovery comes off the boil The continued fall in the EC’s Economic Sentiment Indicators for September provides further evidence that the regional recovery in Central and Eastern Europe has slowed in Q3 as supply disruptions have …
Last week’s surprise interest rate cut by Turkey’s central bank is particularly worrying given the backdrop of the country’s fragile external position. While the current account deficit has narrowed and the central bank’s net FX reserves have increased …
27th September 2021
Appetite for further monetary tightening wanes Central banks have started to slow tightening cycles in recent weeks and, in Turkey’s case, begin cutting interest rates. As inflation pressures ease, this pattern is likely to continue. But the Czech …
24th September 2021
Turkey’s central bank (CBRT) unexpectedly cut its one-week repo rate by 100bp to 18.00% today, despite the further rise in inflation in August, and we now think that further aggressive easing is likely over the coming year. But this could ultimately sow …
23rd September 2021
Hungary’s central bank (MNB) slowed the pace of its tightening cycle today, raising its base rate by a smaller-than-expected 15bp to 1.65%, and the post-meeting communications signalled that future rate hikes will remain at the smaller end of the …
21st September 2021
Recovery losing steam Poland’s economy appeared to lose steam in August amid signs that global chip shortages started to weigh on industrial output and retail sales failed to reverse a dip in July. We still think that GDP will rise by a robust 1.5% q/q …
Energy prices adding to inflationary pressures The recent surge in European gas and coal prices will push headline inflation further above central bank’s targets in most countries in the coming months. European coal and natural gas prices have surged over …
17th September 2021
A victory for United Russia in the Duma elections this week will strengthen the government’s recent focus on state intervention in the economy. Social redistribution has become a key priority for the government and large businesses may end up paying for …
15th September 2021