The twin-speed recovery (Q3 2010)

Some economies in Emerging Europe should grow at a decent pace over the next year or so, but most are facing a long haul back to health and the likelihood of renewed tensions within the eurozone represents a major risk to the recovery across the entire region. Turkey should remain ahead of the pack, while Poland is likely to fare well too. Slovakia and the Czech Republic will tread the middle ground – they are highly exposed to a slowdown in the euro-zone’s core, and Germany in particular, but household and corporate balance sheets are relatively healthy and banks in both countries are in fairly good shape. By contrast, the legacy of last decade’s credit boom means that the outlook for the Baltics, Balkans and Hungary is altogether less rosy. A sustained recovery here still looks some way off. Finally, growth in the region’s largest economy, Russia, remains tied to the price of oil. If prices hover around their current level of $80pb or so, growth will be impressive. But if they fall back next year, as we expect, the recovery is likely to stall. All told then, there are still good reasons to expect growth in Eastern Europe to lag behind that of other emerging markets.