Recent data releases suggest that the rate of decline across Emerging Europe has started to ease. But while the region as a whole may no longer be in freefall, there are a number of reasons to remain cautious. First, while industrial production has recorded monthly increases in most countries, this partly reflects seasonal factors (data in the region are not generally seasonally-adjusted). Second, much of the pick-up in financial markets so far has been driven by a general rise in global investor confidence, which we expect to fade over the second half of the year as the pace of the global economic recovery disappoints. Finally, the underlying weaknesses in the region will not disappear overnight. Fragile banking sectors will keep credit conditions tight, while the spectre of fiscal tightening will weigh on growth prospects, particularly in Hungary.