South Eastern Europe Economic Forecast

Economic Snapshot for South-Eastern Europe

September 4, 2019

The Turkish downturn set to drag on regional activity

Regional economic growth is expected to slow in 2019, largely due to a contraction in Turkey. Moreover, a weaker Euro area will likely weigh on external demand. That said, domestic metrics should support growth, underpinned by healthy private consumption and capital spending. Ongoing trade tensions, the EU slowdown and a fragile political climate in Turkey cloud the outlook.

South-Eastern Europe Monetary & Financial Sector News

Regional inflation rose to 9.4% in July (June: 8.8%), pushed up by broad-based stronger price pressures across most of the region. Particularly, inflation accelerated in Turkey after falling to a one-year low in June. Looking ahead, regional inflation should ease on the back of an expected moderation in Turkey’s inflation rate, as well as weaker demand pressures. 

Central banks in the region continued down a more dovish path in recent weeks. In Serbia, the key policy rate was slashed for a second time this year, in light of a more uncertain global backdrop. Moving forward, regional central banks are expected to turn even more accommodative, in tandem with leading central banks, and given expected monetary policy unwinding in Turkey.

Most free-floating currencies in the region, and especially the Turkish lira, depreciated recently amid intensifying U.S.-China trade tensions. Regional currencies are expected to further weaken this year, as a more dovish ECB will weigh on the euro and euro-pegged currencies, while geopolitical tensions and a weak external position will drag on the lira and the leu, respectively.


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