The raft of second quarter GDP data released in Central and South Eastern Europe this month showed that growth eased across much of the region. It’s tempting to interpret this as a sign that the Ukraine crisis has derailed the region’s recovery. But in fact the drag from both Russia and Ukraine on exports has been small. Instead, the slowdown seems to relate more to broader weakness in euro-zone trading partners, weak labour market conditions at home and, perhaps more simply, payback from a very strong first quarter. In any case, the GDP data were by no means disastrous. In most cases, growth was still much stronger than it has been over the past three years. All told, while we think growth in the second half of the year is likely to be weaker than in the first half, we don’t think the region’s recovery has gone into reverse.
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