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Goldman Sachs Hawkish on CEEMEA Rates Due to Persistent Underlying Inflationary Pressure

EMERGING MARKETS
  • Underlying inflationary pressures appear stronger in most CEEMEA economies than in other regions, reflecting a broadening of price pressures away from energy and food costs, and towards core goods and services, Goldman Sachs say. Given this, their 2023 and 2024 inflation forecasts remain above consensus and their rate views are also more hawkish than market pricing for most CEEMEA economies.
  • Looking forward, although the CEEMEA region continues to face significant economic headwinds, the worst of their effects may have already passed: global financial conditions have eased and the squeeze on incomes from high energy prices has also declined, GS say.
  • GS expect the fallout from banking stress on CEEMEA economies to be limited due to reduced exposure to DM banks, less bank-centric financial systems and because EM bonds have sold off by less than DM bonds, implying less direct risk for EM bank balance sheets.
  • However, if the stresses in US and Euro area banking systems were to become more systemic, the CEEMEA economies most exposed to this risk would be the CEE-4 (due to strong economic linkages) and Turkey (due to significant cross-border bank exposure).
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