Baltics set for recession, while Russia heats up (Q2 2008)

The outlook for the region as a whole remains fairly positive, but the prospects for individual economies have diverged markedly. We think that the structure of capital inflows will play a critical role in determining the near-term growth outlook for each country. Countries such as Poland, Slovakia and the Czech Republic, which have received large inflows of Greenfield investment in recent years, look well placed to weather a global slowdown. By contrast, countries in the Baltics and Balkans that have relied on shorter term inflows to fund a consumption binge look set to suffer over the next year or so as financing conditions deteriorate. Meanwhile, overheating not weakening activity remains the predominant concern of Russian policymakers.