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Emerging Europe

Emerging Europe Economics Update

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

Emerging Europe Economics Update

Central and Eastern Europe GDP (Q2 2022)

A mixed performance, with Poland getting the wrong headlines GDP in Hungary and Romania continued to expand strongly in Q2 by 1-2% q/q, but the Czech and Slovakian economies barely grew at all and there was a shocking 2.3% q/q contraction in Poland. Looking ahead, the economic outlook has deteriorated sharply. External demand is weakening and inflation continues to surge.…

17 August 2022

Emerging Europe Data Response

Israel GDP (Q2 2022)

The stronger-than-expected 6.8% q/q annualised expansion in Israel GDP in Q2 confirms that the Q1 contraction was just a blip. Economic activity remains strong and alongside the red-hot inflation figures for July, the risks are skewed to a 75bp rate hike at next week’s central bank meeting. We think a 50bp hike (to 1.75%) is just about more likely but we maintain our view that rates will reach 3.0% next year. Europe Drop-In (18th Aug.): Winter is coming to the European economy – but how harsh will it get? Join this special briefing on the economic impact of Russia’s gas supply threat. Register now.

16 August 2022

Our view

The region’s economies have held up well since the start of the war in Ukraine, but there are now clearer signs that growth is weakening and that headwinds are mounting. Inflation has reached rates last seen in the 1990s, prompting central banks to step up monetary tightening. Current account deficits have blown out due to surging energy imports, which will keep currencies under pressure. And a euro-zone recession will dampen external demand and weigh on exports. Meanwhile, Turkey’s economy will remain vulnerable to sharp and disorderly falls in the lira if global risk sentiment continues to sour.