Region’s star performers set to lose their shine

The slowdown in Emerging Europe in recent months is a sign of things to come, and we expect a number of countries to spend the next year in recession. The most obvious concern on the horizon remains the rolling crisis in the euro-zone, which, despite recent optimism, we continue to think will result in the break-up of the single currency. But the risk of contagion from euro break-up is compounded by home-grown problems. Many of the region’s economies are undergoing severe fiscal austerity, while Poland is reaching the limits of a two-year consumer boom. The upshot of all this is that we expect regional growth to slow to just 2.0% this year and next (from 4.8% in 2011) – although there is a considerable risk that a messy break-up of the euro causes a much sharper downturn. Those countries that are most open (the Czech Republic) and suffer from the greatest financial frailties (Hungary) are likely to spend much of the next year in recession. But the region’s star performers in recent quarters (Poland and Russia) will also lose some of their shine.