Eventual recovery to expose sharp country divisions (Q2 2009)

A modest improvement in the outlook for Western Europe means that some countries in Emerging Europe - notably Poland, Turkey and the Czech Republic - could now see a return to positive growth in Q1 of next year. But while the recovery may come slightly sooner than we had initially expected in some countries, it will be extremely sluggish. And the outlook for the rest of the region remains grim. A fragile banking sector continues to weigh on the outlook for Russia, Hungary and Romania, the latter two of which may not register positive growth until the end of next year. Meanwhile, there remains a very real and growing risk of a messy devaluation in the Baltics and Bulgaria. In the absence of evidence of a stronger recovery in Western Europe, we remain decidedly downbeat.