While some economies managed to post quarterly growth in Q2, others continued to contract sharply. We think that there are still plenty of reasons to be cautious, even in those countries that appear to have emerged from recession. For a start, some bounce-back was always possible in the near-term as firms rebuild their stocks. But this cannot form the basis of a return to sustained growth. In addition, while signs of improvement in the euro-zone are encouraging, they have been driven largely by a sharp fall in imports, which offers little immediate hope for Emerging Europe’s exporters. More generally, much of Emerging Europe remains burdened by fragile banking sectors and high levels of fx-denominated debt, while deteriorating public finances are a growing concern even in the healthier economies. We continue to think that the region as a whole could contract once again in 2010.