Domestic austerity continues to bite

A raft of GDP data released this month showed that growth slowed across most of Emerging Europe in the second quarter. Hungary and the Czech Republic were the worst performing economies, as both sank further into recession. And even the region’s most resilient economies – Russia and Poland – have disappointed. While it is tempting to conclude that weaker demand from the crisis-hit euro-zone is behind the slowdown, domestic factors are also at play. The combination of fiscal austerity, subdued labour markets, and falling consumer confidence appears to have hit domestic demand. And with external headwinds set to mount over the coming quarters, we think the region’s growth will continue to disappoint.