The deepening turmoil in the euro-zone is likely to drag large parts of Emerging Europe into recession over the next year. Financial sector vulnerabilities mean that recession risks are greatest in Hungary, Ukraine and the Balkans – indeed, in the extreme, IMF assistance may ultimately be needed to avert an external financing crisis in all of these economies. We also expect the Czech Republic and Turkey to slide into recession next year. More positively, Poland should continue to outperform its peers in Central Europe.
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