Sharp slowdown in store as storm clouds gather

Economies in Emerging Europe were resilient in the first half of this year, but the outlook has deteriorated markedly as headwinds have strengthened. Inflation is likely to continue rising and we think that GDP will do little more than stagnate in the coming quarters in most countries, with Czechia, Slovakia and Bulgaria entering recession. Our growth forecasts are generally below the consensus and we think the risks are firmly skewed to the downside. Interest rates are nearing a peak in Poland and Czechia, but we think that a lot more tightening lies in store in Hungary and Romania and, in all cases, that policy rates will remain high for longer than most expect through next year.