Central Europe loses some of its shine

Central Europe has been a rare bright spot in the emerging world over the past few quarters, but recent developments have taken some of the gloss off. Activity and survey data for August and September were notably softer, mirroring some of the figures from the region’s largest export market, Germany. Meanwhile, the VW emissions scandal and temporary border closures arising from Europe’s migrant crisis have raised concerns that manufacturing activity could be further disrupted. To top matters off, Law and Justice’s victory in this month’s Polish election have added to the sense that policymaking in the region is taking a more populist turn. For our part, we don’t think that these will have substantial near-term economic implications. Nonetheless, the latest developments suggest that the downside risks to the growth outlook have risen.