• York Investment & Finance

Global Markets Overview: Eastern Europe

By Julia Solecka, Analyst at the York IFS Global Market Telegraph

From 31 August to 6 September 2020

The second half of August has seen Russia’s MOEX decline by 7.43%, wiping out all gains made earlier in the month. After an initial rise in confidence following the announcement of Sputnik V, the first COVID-19 vaccine, the index began its decline amid scepticism about safety. The drop only accelerated following Angela Merkel’s claims to ‘unequivocal proof’ [1] that Putin’s critic, Alexei Navalny, was the victim of poisoning by the Novichok nerve agent previously seen in the Salisbury attacks. The attempted murder sparked protests across Khabarovsk against President Putin and Russia’s suspected involvement [2]. The Hungarian BUX also ended the week down 3.17%, in comparison to most other Eastern European indexes which climbed week on week.

Unrest has continued in Belarus as protests against Alexander Lukashenko escalated, with dozens of university students detained after joining marches to mark the start of term. The media crackdown has also resulted in multiple journalists deported and stripped of accreditations [3], among both further internet disruption and online censorship [4]. With most EU countries still condemning the actions of Belarus officials and considering sanctions, several relations with the country have begun to sour. Ukraine has frozen dialogue with Belarus until the domestic situation stabilises [5], while relations with Poland have worsened following Lukashenko’s claims that Warsaw is likely to be planning to seize part of the country following the political crisis [6]. While Russia has announced its readiness to deploy police should the situation worsen, Angela Merkel has warned Putin against such intervention, with the UK, US and EU joining to call for an end to the violence. Putin’s response was one of warning against any EU sanctions, whilst Belarus retaliated with threats of cutting access to European transit routes should any be imposed. Belarus’ economy has already incurred substantial losses following the protests, with an estimated cost of $500m [7] placed on top of a country already experiencing the negative effects of the pandemic.

Anti-corruption protests have also continued in Bulgaria, reaching the end of their second month. After 57 consecutive days and following Prime Minister Borissov’s refusal to resign, the clashes in Sofia turned violent, resulting in 126 arrests and 80 police officers injured [8]. Despite the ongoing tensions, recent GDP data suggests that the economy is outperforming many of its European competitors with the most recent contraction of 8.2% in comparison to 2Q19 — better than Bloomberg’s consensus of -10%. Even with the 2020 GDP forecast being upgraded by ING Think from -5% to -4.5% [9], the country still faces a decreasing employment rate and a forecast increase of 21% in the number of companies declaring bankruptcy [10] as a result of the ongoing pandemic.

Amid efforts to reduce coronavirus infections, Hungary has announced a closure of its borders to all foreigners, which has been met with a warning from the EU against its efficiency [11]. A less drastic effort has been made by Poland which has reintroduced restricted air travel to 44 countries, which was also met by criticism from the EC due to being disproportionate to the risk posed [12]. In more positive news, trade volumes in Latvia have bounced back to their pre-COVID levels, with strong domestic consumption being one of the main drivers for a more positive economic outlook [13].

By Julia Solecka, Analyst at the York IFS Global Market Telegraph

This article was first published in University of York Investment and Finance Society's Global Market Telegraph (GMT) Edition 6 in early September 2020

Reference list:

[1] https://www.euronews.com/2020/09/02/unequivocal-proof-alexei-navalny-was-poisoned-using-chemical-nerve-agent-novichok-says-ber [2] https://www.abc.net.au/news/2020-08-29/vladimir-putin-have-some-tea-russian-city-anti-kremlin-protest/12609698 [3] https://www.aljazeera.com/news/2020/08/belarus-withdraws-accreditation-deports-journalists-crackdown-200829131526923.html [4] https://www.hrw.org/news/2020/08/28/belarus-internet-disruptions-online-censorship [5] https://www.reuters.com/article/us-belarus-election-ukraine/ukraine-has-frozen-dialogue-with-belarus-foreign-minister-idUSKBN25O0WC [6] https://uk.reuters.com/article/uk-belarus-election-poland/poland-calls-lukashenkos-words-unacceptable-as-relations-become-tense-idUKKBN25O0V6 [7] https://www.intellinews.com/losses-to-the-belarus-economy-already-500mn-protests-cut-minsk-off-from-capital-markets-with-3bn-to-finance-this-year-190210/ [8] https://balkaninsight.com/2020/09/03/bulgaria-arrests-126-amid-clashes-at-anti-govt-protest/ [9] https://think.ing.com/snaps/bulgarian-gdp-surprising-positively-again [10] https://www.novinite.com/articles/205447/Experts+Predict+a+21+Increase+in+Bankruptcies+in+Bulgaria [11] https://euobserver.com/coronavirus/149282 [12] https://www.thefirstnews.com/article/ec-criticises-polish-flight-ban-15416 [13] https://bnn-news.com/bank-analysts-trade-volumes-in-latvia-have-reached-pre-crisis-levels-216553

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