The economic outlook has deteriorated across the region. Inflation is soaring and monetary conditions are tightening, which is weighing on households’ real incomes and spending power. The latest surveys show consumer confidence tanking and economic sentiment weakening in July to levels consistent with stagnation in Central Europe in Q3. Industry is holding up well in Turkey and parts of Central Europe but, with the euro-zone likely to enter recession this year and the likelihood of energy shortages growing, we doubt this resilience will last. We already expect some countries to enter recession, including Slovakia and Czechia, and for growth to slow sharply in Turkey and Hungary. The endless flow of bad news suggests that the risk of recession could broaden out and that those downturns could be deeper than we expect.
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