Cycle to turn in 2018

Most economies in Emerging Europe had a very strong end to 2017, but we expect regional growth to soften in the coming quarters. The economic cycle in Central Europe is now looking mature and growth is likely to weaken gradually. Inflation will rise further and, despite continued loose ECB policy, we think central banks will raise interest rates. Turkey and Romania, which saw turbo-charged growth last year, are set to suffer sharper slowdowns. A handful of economies will buck the trend, notably Russia, whose recovery has faltered in recent months but is likely to resume in 2018. Faster growth there will be accompanied by continued low inflation and further interest rate cuts. But, for the region as a whole, growth is likely to slow to 3.0% this year and 2.3% in 2019, from 3.8% in 2017. With the exception of Russia, our growth forecasts for 2018-19 are now below the consensus.