Emerging Europe: Riding on the wind

Emerging Europe Riding on the wind

Robust growth to continue in the region in 2018. Inflationary pressures in check - mostly

The Emerging Europe region as a whole is forecast to grow by +3% in 2018, following a strong +3.7% in 2017.

Central Europe: Strong, balanced growth

Notably the 11 EU member states in the region will continue to perform well. These economies have been on a path of strong recovery since 2014, somewhat earlier than Western Europe, thanks to strengthening domestic demand which has put growth on a more balanced footing. Private consumption is forecast to remain a key growth driver in 2018, supported by strong wage growth, low interest rates and still moderate inflation.

Fixed investment growth rebounded in 2017, thanks to better absorption of EU funds, and should remain robust in 2018 though the rate of increase will be somewhat lower due to base effects. In Romania and Poland, substantial pro-cyclical fiscal stimulus boosted growth in 2017, raising some concern of potential overheating and rising inflationary pressures.

Indeed, inflation rose to 3.3% at end-2017 in Romania, prompting a timid 25bp policy rate hike to 2.0% by the Central Bank.

GDP growth forecasts and short-term country risk as of Q4 2017