Dodging a deep downturn, but challenges far from over

There are encouraging signs that the energy crisis is receding, the worst of the downturn is passing and that inflation has peaked across the region, but this year will still be challenging. We expect below-consensus GDP growth in most countries in 2023, particularly in Poland, Hungary and Czechia. Turkey, Israel and Romania are likely to outperform, but growth will still slow this year. Meanwhile, we expect central banks in most countries to start cutting interest rates by end-2023, although we think that stubbornly high inflation will keep policy tighter than investors expect over the next two years.