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Resilience so far, but much tougher times ahead

Economies across the region were generally resilient in Q2 despite tightening financial conditions and the war in Ukraine. Russia’s downturn was milder than expected, Turkey’s economy has held up well since its currency crisis late last year and recoveries in industry supported growth in Central Europe. The second half of this year will be much more challenging though. Large external vulnerabilities in Turkey leave the lira susceptible to sharp and disorderly falls. Central European economies will battle with higher interest rates, surging energy prices and inflation as well as weakening external demand. Fiscal tightening will exacerbate the slowdown in Hungary. We expect Poland and Hungary to barely grow at all in Q3 and Q4 and that many of the smaller economies such as Slovakia and Czechia will enter recession.

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