Recovery continues, but at a slower pace

Q4 GDP data from across Emerging Europe show that the region’s recovery continued in the final months of last year. Of the economies that have reported data so far, all posted positive quarterly growth in Q4 and growth accelerated on an annual basis in most cases too. However, it now seems that the ‘low hanging fruit’ has been picked. Indeed, in the highly-open Central European countries, the pace of quarterly growth slowed in Q4. With key export markets in the euro-zone facing a challenging outlook, and domestic fiscal squeezes starting to bite, sustaining the current pace of recovery will become more difficult from here on. Meanwhile, although the Baltic states and Bulgaria posted sizeable quarterly gains in Q4, this partly reflects the fact that their recoveries have so far lagged behind the rest of the region. Elsewhere, we are still awaiting Q4 GDP figures from Russia and Turkey. But growth prospects remain the strongest in these economies and they are the only cases where core inflation pressures are likely to build over the course of this year.