The meeting of March 18, which took place under the mediation of the EU between Kurti & Vucic, was advertised as the culmination of the efforts for a final agreement towards the normalization of relations between Kosovo & Serbia. However, in the end, no official signing occurred, although there is an understanding that de-facto, both countries agree with this proposal.
The persistence of inflation amidst recession risks will continue to play a crucial role in CE/SEE monetary policy (MP). In the dilemma between combating inflation and not harming the economy too much, central banks (CBs) should maintain their data-driven approaches this year. Nevertheless, 2023 will test the (inflation-fighting) credibility of CBs in Emerging Europe, especially when it comes to possible rate cuts, especially in CE, as early as this year. At least current market pricing seems to be comfortable with current MP stances.
“It's the economy, stupid” is a phrase coined by James Carville in 1992. Carville was a strategist in Bill Clinton's 1992 presidential campaign against incumbent and Cold War triumphant George H. W. Bush. His phrase was directed at the campaign's workers and intended as one of three messages for them to focus on. We are borrowing the phrase to draw attention where to concentrate on, when considering the monetary policy.
The market environment proved to be constructive in the first few days of the year. Global risk aversion faded and particularly European assets were able to gain. The euro but also most CEE currencies benefited while the US dollar lost ground as the US disinflation trade continues. Less driven by global market sentiment but rather current account fundamentals, the Russian rouble consolidated near 70 to USD after having depreciated more markedly in recent weeks. Starting the year on a sunny note is welcome but one should not assume that the clouds of 2022 have all passed by.
This issues features:
Economic activity accelerated in Q3 2022, reaching 4% yoy growth, compared to 2.7% (revised upwards from 2.2%) in Q2. We confirm our 2022 FY forecast for GDP growth of 3.9%, as upwards revised data in Q2 balances out lower public investments in Q4, as indicated by the fiscal surplus of the first 11 months of 2022. In our opinion, although the government will speed up the tendering process in December, it will not be able to fill the gap. Thus, the contribution to GDP from the public investments in Q4 is projected to be lower than initially forecast.