Emerging Europe Watch – Can Emerging Europe weather the Ukraine storm?

by: Peter de Bruin

Emerging-Europe-Watch - 19 August 2014 - Can Emerging Europe weather the Ukraine storm?.pdf ()
  • With geopolitical tensions related to the Ukraine crisis frequently grabbing the headlines, many commentators have turned negative on Eastern Europe. However, the latest string of economic data suggest that emerging Europe, though, slowing somewhat, is weathering the Ukraine storm relatively well. Although the region is exposed to the recent slowing of the Eurozone and in particular Germany, trade links between emerging European countries and Ukraine/ Russia are modest.
  • Another reason why emerging Europe is weathering the Ukraine crisis relatively well is that Russia’s economy, so far, seems to be not too hard hit by the imposed sanctions, though substantial downside risks remain. While annual GDP data suggests that the economy – in quarterly terms – could have contracted for two consecutive quarters, indicating that it is in a technical recession, any contraction is likely to have been modest, if at all. Moreover, after being below the boom-bust mark of 50 for eight months in a row, July’s manufacturing PMI rose to 51, suggesting that the manufacturing sector is expanding again.
  • Of the other emerging European economies that we discuss in this publication, the Hungarian economy seems to be the least affected by the Ukraine crisis. In fact, recent data have prompted us to raise our 2014 growth forecast. The weakening in growth in Poland is most likely related to the crisis. However, we doubt that the softening in the Czech Republic and Turkey has much to do with the Ukraine crisis. Indeed, growth in the Czech Republic mostly slowed due to the effects of the excise tax on tobacco that has been imposed in the beginning of the year. Meanwhile in Turkey, although the central bank has started to loosen its policy, this still needs to filter through the economy.