A regional slowdown

The past few months have brought early signs that growth has peaked in parts of Emerging Europe, and we expect the pace of expansion to ease in most countries over the course of this year and 2019. In Central Europe, the turn in the cycle should be relatively gradual. Turkey and Romania, two economies where a recent period of rapid growth has resulted in clear signs of overheating, are likely to suffer more abrupt slowdowns. Interest rates are likely to be raised across most of the region over the coming year. Russia is the exception to this story. Despite the recent turmoil in local markets caused by US sanctions, we think the cyclical recovery will strengthen in the coming quarters. And the central bank should have room to lower interest rates. Our forecasts for growth across Emerging Europe in 2018-19 are generally below the consensus, but we think Russia could surprise on the upside in the next few quarters.