Having contracted in 2015, we expect the economy of Emerging Europe to return to growth in 2016. This will be driven in large part by an improvement in conditions in the region’s largest economy, Russia, which should exit recession over the coming quarters. That being said, the recovery in Russia will be very different from past recessions and especially sluggish. Fiscal policy will need to tighten further, bank lending will remain weak and deep-seated structural problems are likely to constrain business investment. Accordingly, while Russia is over the worst, its economy will remain fragile. Instead, we think the region’s growth stars will be in Central and South Eastern Europe, where several economies will remain in a sweet spot of fast growth, low inflation and loose monetary policy. The election of more populist governments has cast a cloud over the medium-term outlook, but this won’t prevent these countries from enjoying solid growth in 2016-17.
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