The good news is that following the turmoil earlier this year, most economies in Emerging Europe have now returned to positive growth and financial markets have bounced. The bad news is that a number of countries remain mired in recession and, for the rest, the recovery will resemble a slow grind rather than a rapid rebound. In contrast to other parts of the developing world, domestic demand in Emerging Europe is still facing a number of significant headwinds. Fragile banking sectors will keep credit conditions tight, a fiscal squeeze is looming in pretty much every country and the labour market adjustment has further to run. With growth in key export markets set to remain sluggish, the region is unlikely to expand by much more than 2.5% next year – well down on the 6% average between 2005 and 2008. And in some cases – notably Russia – it will take at least five years for GDP to return to pre-crisis levels.