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Follow through

By Simon Williams, Chief Economist, CEEMEA

18 July 2024

Article

Article

CEEMEA Economics Quarterly

From South Africa to Poland, Türkiye to Egypt and Nigeria…
…policy shifts are laying the ground for rebalancing and eventual recovery
But there is still a way to go

We are under no illusions regarding the magnitude of the policy tasks that lie ahead across much of Central and Eastern Europe, the Middle East and Africa (CEEMEA) particularly in economies still coming to terms with a protracted period of weak growth, high inflation and deteriorating fiscal and external account metrics.

We are also conscious of the policy challenges and elevated political risks that weigh on the outlook. The uncertain global economic backdrop, volatile expectations for major central bank interest rate choices, a still-strong dollar and consequent sharp moves in appetite for emerging market risk also give us pause for thought.

And yet for all of the ongoing concerns, we are increasingly persuaded that the cycle is turning across much of CEEMEA, and the region is moving on, albeit at an uneven pace. This more constructive stance is not new, but it is increasingly apparent in our refreshed forecasts for the 20 disparate economies we cover across the region.

Our growth forecasts

This includes our projections for growth which we now see running at 2.6% this year on a weighted average basis – 0.5ppt above our estimate for 2023, and 0.2ppt above our previous projections for 2024 – a second consecutive quarter of cautious near-term forecast upgrades. We have also boosted our forecasts for 2025 by 0.3ppt to 3.4%, a pace of increase that compares well with the region’s long-term average.

We are increasingly persuaded that the cycle is turning across much of CEEMEA and the region is moving on, albeit at an uneven pace

What stands out in the new projections is the breadth of the upgrades which encompass 10 of the economies we cover for this year and 14 for 2025, with countries as diverse as the UAE and Nigeria, Ghana and the Czech Republic seeing more positive forecasts in both years of our forecast period.

The upgrades have only limited expectations for gains in external demand, particularly on a net-export basis, but are instead driven by a better outlook for domestic demand, underpinned by resilient labour markets, a pickup in real wages as inflation falls and – in some cases – supportive demographics. We also expect investment to rise as interest rates fall and sentiment starts to turn, particularly where backed by strong national or supra-national public entities.

2.6%

2024 weighted average CEEMEA GDP growth forecast (HSBC Global Research)

3.4%

2025 weighted average CEEMEA GDP growth forecast (HSBC Global Research)

The inflation outlook has continued to improve

But it is less the early signs of a pick-up in momentum that offers us some cheer, but rather evidence that imbalances that have been an impediment to recovery and a source of pronounced vulnerability continue to be addressed. Inflation is key to this, and we see data substantiating our longstanding expectations of marked and lasting gains in price stability through this year and next.

The near-term improvement is not immediately apparent in our overall forecasts that show inflation at 13.6% on average in 2024, roughly the same as last year. But even this top line projection is 0.8ppt lower than our estimates for 2024 three months ago and continues to show a 5ppt drop in average inflation next year.

13.6%

Weighted average CEEMEA inflation forecast for 2024 (HSBC Global Research)

8.8%

Weighted average CEEMEA inflation forecast for 2025 (HSBC Global Research)

More central banks turn more hawkish

While higher commodity prices and strengthening real wages pose a threat to this improved inflation outlook, we are comforted by the more cautious approach we see central banks signalling they will take. Indeed, while for most of the region there is still an easing bias, we have made significant forecast revisions that point to cuts coming later and more slowly than we previously assumed, with central banks acting only when they are sure inflation is heading to target and if the external back drop permits. We expect this stance to offer regional currencies support, too, which should also help anchor domestic prices.

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The following analyst(s), who is(are) primarily responsible for this document, certifies(y) that the opinion(s), views or forecasts expressed herein accurately reflect their personal view(s) and that no part of their compensation was, is or will be directly or indirectly related to the specific recommendation(s) or views contained in this research report: Simon Williams

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