US: Potential implications of trade wars for the CEE - Rabobank

According to Piotr Matys, EM FX Strategist at Rabobank, apart from a hawkish message from Fed Chairman Powell, who hinted that policy makers may seriously consider four instead of three hikes this year, the Goldilocks scenario for the CEEMEA currencies based on the synchronised global growth, relatively low inflation and accommodative financial conditions has been also dented by the rising risk of full scale trade wars.

Key Quotes

“The prospect of a trade war between the US and the EU would have negative implications for the CEE given that car manufacturing is one of the biggest sectors in the region.”

“To summarise, the economic outlook for the CEE region is still positive at this stage. Growth remains supported by robust consumer spending, recovery in investment and exports. However, the third pillar of growth could be undermined by a trade war between the US and the EU unfolds.”

“Should the prospects for the CEE worsen as a result of rising risk of protectionism, not only capital inflows to local assets would slow down, but we may witness outflows that would lead to a reversal in EUR/CEEs and USD/CEEs over the mid-term horizon.”