CEEMEA Economics Analyst_ CEEMEA Outlook — Contrasting Risks

Summary of CEEMEA Economic Outlook Industry Overview - The report focuses on the CEEMEA (Central and Eastern Europe, the Middle East, and Africa) economic outlook for 2025, highlighting growth prospects, inflation trends, and monetary policy adjustments. Key Points Economic Growth - CEEMEA economies began 2025 positively, with growth accelerating to a 3.4% annualized pace in early 2025, driven by stronger performance in South Africa and Turkey [2][5][21] - Growth estimates for 2024 have been revised from 2.2% to 2.5%, and for 2025 from 2.7% to 2.9%, with Turkey showing the most significant upward revision [4][21] Inflation Trends - Underlying inflation is declining across most CEEMEA economies, although recent data has shown unexpected increases in Hungary, Russia, Turkey, Egypt, and Ukraine [4][25] - The inflation forecast for 2025 has been revised higher, particularly for Hungary, Russia, Turkey, and Egypt, reflecting mixed developments in inflation dynamics [35][37] Monetary Policy Adjustments - The timing for the next rate cuts has been pushed back: South Africa, Egypt, and Ghana to Q2; Poland, Hungary, and Romania to Q3; and Russia and Kazakhstan to Q4 [4][39] - Central banks are adopting a cautious approach to monetary easing due to increased external uncertainties and higher-than-expected inflation in some countries [39][46] Risks to Economic Outlook 1. Potential Ceasefire in Ukraine: Speculation around a ceasefire deal has increased, with a 70% probability indicated by betting markets. The economic implications depend on the nature of the ceasefire, with potential benefits for CEE-4 countries [8][12] 2. US Tariff Increases: The risk of increased tariffs poses a significant threat to CEEMEA growth, particularly for export-oriented economies reliant on the auto sector and EU trade [15][16] 3. Middle East Uncertainty: Increased uncertainty in the Middle East, particularly regarding US involvement in Gaza, could impact regional risk markets and economic stability [17][19] Regional Insights - The CEE-4 countries (Poland, Hungary, Romania, Czech Republic) are particularly sensitive to the risks associated with the Ukraine conflict and potential US tariffs [45][46] - Turkey's economic activity is returning to trend, with expectations for higher growth and inflation in the medium term [6][21] Conclusion - The CEEMEA economic outlook for 2025 is characterized by a mix of positive growth momentum and significant external risks. The interplay between these factors will be crucial in shaping the economic landscape for the region in the coming year [7][45]