Commonwealth of Independent States

Emerging Europe Outlook: EZ Spillovers Mount

Trade and financing spillovers from the eurozone (EZ) will result in below-potential growth rates across the region and push more export-oriented countries (Hungary, the Czech Republic) back into recession. We now expect only a modest growth rebound in 2013, reflecting weaker economic prospects in the region’s main trading partners in the EZ and market tensions surrounding the expected Greek exit in Q1. Market anxieties and concerns about preserving financial stability will make local central banks more cautious and delay the start of expected monetary easing (and limit its extent). Russia aside, local governments will remain on the fiscal-consolidation track to reduce market pressures, despite growing public backlash against austerity. In equities, we continue to underweight the region, despite cheap valuation, as several storms batter emerging Europe: The heightened EZ crisis (suggesting tighter financial and credit conditions, continued deleveraging and weaker exports amid EZ recession), global risk aversion, weaker commodity prices, continued austerity and a lack of structural reform in Russia.

Read the latest Emerging Europe Outlook Update