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Regional recovery to disappoint, rates to come down

Growth across Emerging Europe is likely to pick up in 2017-18, but it will be softer than most anticipate. While the region’s largest economy, Russia, will return to positive growth in the coming quarters, the recovery will be sluggish. In Central Europe, there’s no sign that Brexit has had any impact, but the tailwinds that propelled these economies last year are starting to fade. We expect growth to slow and settle at a more normal pace of 2.5-3.0%. Weaker growth in Russia and Central Europe will be accompanied by lower-than-expected inflation and a shift towards looser monetary policy. Indeed, we generally expect interest rates to be lower than the markets are pricing in. Turkey will be something of an outlier within Emerging Europe. Growth is likely to slow sharply, yet the economy is also likely to see higher inflation and interest rates by next year.

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