The latest activity figures suggest that Emerging Europe’s strong economic performance continued in the early months of this year. Russia’s recovery has resumed following a slowdown in the second half of last year. And it looks like Turkey’s economy has expanded by about 7-8% y/y. Meanwhile, although GDP growth appears to have slowed a touch in Central and Eastern Europe, it remains strong. Overall, we think regional GDP is on course to expand by about 4.3% y/y in Q1, broadly in line with Q4’s outturn. The rapid pace of growth in Turkey has raised fresh concerns about overheating. The current account deficit has widened sharply, the lira has weakened against the US dollar and there is growing speculation that the central bank will act to shore up the currency. We have also voiced concerns about overheating in CEE and labour markets in particular look tight. But, with the exception of Romania, inflation has softened in the last few months and central banks appear to be in no rush to tighten monetary policy.
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