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Emerging Europe

Turkey

CBRT rate cut sowing the seeds of next currency crisis

Turkey’s central bank stepped up its fight against economic orthodoxy by cutting its one-week repo rate by 100bp, to 13.00%, despite the backdrop of inflation at 80% and an extremely poor external position. This latest move could prove to be the trigger for yet another currency crisis.

18 August 2022

Turkey Industrial Production & Retail Sales (Jun.)

Turkey’s activity figures for June painted a mixed picture, with industrial production continuing to post solid growth but retail sales suffering a fresh knock. The bigger picture, however, is that the economy appears to have posted another quarter of strong growth in Q2, of 1.5-2.0% q/q.

12 August 2022

Turkey Consumer Prices (Jul.)

The modest rise in Turkey’s headline inflation rate to 79.6% y/y in July suggests that inflation is nearing a peak, but it will remain close to these very high rates for several more months and will be slow to drop back next year. There is no sign that Turkey’s central bank is about to hike interest rates and the risk of sharp and disorderly falls in the lira remains high. EM Drop-In (4th August, 10:00 ET/15:00 BST): Join our monthly online session on the big issues in emerging markets. In this 20-minute briefing, the team will be answering your questions about debt risks amid global tightening, the latest on the inflation outlook and much more. Register now. ​

3 August 2022
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Manufacturing PMIs (Jul.)

Manufacturing PMIs for July fell to levels consistent with contractions in industrial production in Q3, with the exception of in Russia, where the downturn in manufacturing seems to have stabilised. There was an improvement in suppliers’ delivery times and a broad-based easing of price pressures, but it looks very likely that the region’s industrial sectors will enter into recession in the coming months.

Russia cuts gas supplies, signs of slowdown mount

The news that Russia's Gazprom has cut gas exports to Europe further this week has increased the likelihood of recessions in many countries at a time that economic activity more broadly is already weakening. Indeed, the latest surveys out this week point to a sharp slowdown in CEE. With inflation likely to reach a peak soon, we think central banks will bring their tightening cycles to an end in the coming months – and possibly as soon as next week in Czechia.
EM Drop-In (4th August, 10:00 ET/15:00 BST): Join our monthly online session on the big issues in emerging markets. In this 20-minute briefing, the team will be answering your questions about debt risks amid global tightening, the latest on the inflation outlook and much more. Register now.

Energy supply concerns mount, NBP’s wishful thinking

Governments across Central Europe ramped up efforts this week to prevent possible shortages of energy during the winter, but there is a growing risk of energy rationing that would push the region's economies into a deep recession. Meanwhile, the Polish central bank's large downward revisions to its growth forecasts in its latest Inflation Report underline just how much the economic outlook has deteriorated. We think the central bank is pinning too much hope on the labour market weakening to flush inflation out of the system and that it will need to keep interest rates high throughout next year.

Turkey Industrial Production & Retail Sales (May)

Turkey’s activity figures for May show that industrial production and retail sales have now both surpassed their highs from late-2021 despite the weight of sky-high inflation. With strong demand and high energy prices feeding into a worsening current account deficit, and global risk sentiment souring, the lira remains vulnerable to sharp and disorderly falls over the coming weeks.

Emerging Markets Capital Flows Monitor

Capital outflows from EMs picked up over the past month and are likely to persist over the rest of the year. That’s a particular threat to those EMs whose current account deficits have widened or are widening sharply, including Turkey, Chile and parts of Central Europe.

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