A strong Q2, but regional growth nearing a peak

The raft of second quarter GDP data released over the past few weeks showed that growth in Emerging Europe as a whole accelerated to around 3.7% y/y, its fastest pace since 2011. The pickup in growth was widespread across the region. It’s tempting to pin the improvement in the Central European economies on the strength of key euro-zone trading partners. However, monthly activity data suggest that domestic factors – including a rebound in construction and strong retail spending – played a bigger role there. Meanwhile, the upturn in Russia’s economy, which grew by 2.5% y/y in Q2, appears to have been broad-based. As things stand, it looks like the third quarter will mark the peak in the region’s economic cycle, and we expect that growth in most economies – Russia being a notable exception – will slow towards the end of this year and into 2018.