Inflation and fiscal risks simmering

We have generally revised down our growth forecasts for this year and next. Weakness in the euro-zone will remain a drag on export sectors across Central and Eastern Europe in the coming quarters, while tight policy will take some heat out of Russia and Turkey. That said, strong labour market conditions will keep inflation risks alive, and our interest rate forecasts over the next year lie towards the hawkish side of consensus expectations in most countries. Finally, we think that investors are underappreciating fiscal risks that are building in some countries (particularly in Romania and Hungary).