South Eastern Europe Economic Forecast

Economic Snapshot for South-Eastern Europe

October 30, 2019

Regional economic activity is expected to accelerate notably next year

Regional economic activity is expected to accelerate notably next year, largely reflective of a recovery in the region’s largest economy, Turkey. More broadly, domestic demand should remain healthy, despite ebbing fixed investment growth is some countries. However, global trade tensions and a slowdown in the Eurozone could weigh on exports and pose downside risks.

South-Eastern Europe Monetary & Financial Sector News

Inflation in the region fell to 5.5% in September from 8.6% in August, reflective of multi-year low inflation in Turkey amid muted domestic demand. Price pressures in most other countries in the region also moderated on cheaper oil. Next year, regional inflation is expected to ease compared to the 2019 average amid softer price increases in Turkey, Romania and Bulgaria.

Activity among regional central banks was muted in recent weeks with only the Turkish Central Bank making noise. A third above-expectations rate cut was delivered in Turkey as disinflation continued. Looking ahead to next year, the regional average interest rate should come down as Turkey continues to loosen its policy amid an improving inflation outlook.

The Turkish lira and the euro lost ground against the USD in recent weeks on renewed and lingering geopolitical uncertainty, while Romania’s and Serbia’s currencies appreciated. Next year, a weaker lira is seen weighing on the regional average exchange rate, although other currencies pegged to the EUR are expected to appreciate against the USD owing to a euro rally.


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