The increasingly important quality of economic policies given the changing political landscape

Inflation is exceeding target in CEEC markets, limiting the room for maneuver available to central banks to help recovery by continuing to accommodate monetary policies.

In this context, the quality of economic policies is increasingly important for growth and the quality of sovereign credit in the region given a changing political landscape, protracted fiscal adjustments, growing labor shortages and constantly evolving environmental and technological challenges.

ECE-11’s access to substantial investment funding from the EU offers a historic opportunity to increase potential rates of long-term economic growth through spending on digitization, infrastructure and climate change. Improving economic resilience and reducing external sector risks contribute to improving prospects for the Baltic States, Bulgaria and Croatia, the latter two benefiting from membership in the Exchange Rate Mechanism II and the Exchange Rate Mechanism II. Banking Union of the European Union.

Despite this, higher than usual political uncertainty persists in some ECO-11 economies, notably Poland and Hungary, where additional tensions with the EU over the rule of law could lead to a new delay in EU funding and have a negative impact on growth and public finances prospects. The CEEC economies that are most integrated in global supply chains, such as Slovakia and the Czech Republic, whose economies depend on the struggling automotive sector, face slower growth in the shorter term.

Geopolitical Tensions and Sanctions May Impact Prospects for Russia as Turkey Transitions from Crisis to Crisis

Russia benefits from an improved outlook for commodity prices. Effective fiscal and monetary management has helped stabilize its economy, while reducing exchange rate volatility. These developments supported Scope’s earlier upgrade from Russia’s credit ratings at BBB + / Stable.

However, geopolitical tensions are high. The latest US efforts to defuse the crisis in Ukraine could prove crucial, but Russia runs the risk of further international sanctions being adopted, weighing on investment and growth prospects. The significance to Russia’s credit ratings of the risk of sanctions depends at this point on whether Russia’s approach to Ukraine favors a continuation of the status quo. attenuation of pending conflicts, or, on the contrary, favors the escalation of a geopolitical crisis with the risk of more punitive repercussions of sanctions on the part of the Western counterparts. .

In Turkey, the easing of financial conditions anchored very high growth in 2021 to the detriment of the intensification of macroeconomic imbalances, which manifests itself in the depreciation of the pound and inflation above 20%. Turkey’s political framework, to the extent that President Recep Tayyip Erdoğan has consolidated his personal control over the government and the central bank, is incompatible with the long-term viability of the economy.

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Levon Kameryan is Senior Sovereign and Public Sector Rating Analyst at Scope Ratings GmbH. Giacomo Barisone, Managing Director of Scope Ratings, co-authored this article.