South Eastern Europe Economic Forecast

Economic Snapshot for South-Eastern Europe

February 19, 2020

This year, prospects for the regional economy are much improved compared to 2019, mainly owing to a rebounding Turkish economy. Elsewhere, still-cheap credit and a tighter labor market should feed through to wages and further support regional activity. However, external headwinds darken the horizon due to lingering trade tensions and soft momentum in the EU.

South-Eastern Europe Monetary & Financial Sector News

Inflation in the region rose to 7.2% in December from 6.3% in November on higher price pressures in Turkey, which ended several months of declining inflation in the country.  Inflation also picked up elsewhere, with the sole exceptions being Albania and Kosovo. This year, inflation should moderate compared to last year amid softer inflation in Turkey, Romania and Bulgaria.

The Turkish Central Bank continued to make noise with a more-aggressive-than-expected fifth consecutive rate cut in January. Meanwhile, North Macedonia’s Central Bank also cut its interest rate, by 25 basis points to 2.00%. Elsewhere, central-bank activity was muted in recent weeks. This year, the regional interest rate should fall as Turkey further loosens its stance.

In recent weeks, the Turkish lira lost ground against the dollar, while the Albanian lek, Romanian leu and Serbian dinar were broadly steady against the EUR. The region’s other economies use the euro or have currencies pegged to the euro. This year, the regional exchange rate is seen depreciating, weighed on by a weak lira offsetting a relatively stable euro.. 

 

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