Despite the array of uncertainties and risks, the region’s outlook seems likely to feature a gradual slowing from recent peaks, but performance is likely to become more diverse across countries.
Improved fundamentals have made it more likely that Turkey will weather the financial-market storm and continue its growth after 2008 (see table on page 4 of this regional outlook).
The cooling of growth in the Baltics may expose hidden problems in their banks, nonperforming loans, and other elements that might exacerbate the situation.
Hungary sacrificed current growth for a more sustainable path in the future, and the change of the central bank’s focus to inflation points to less monetary support for the economy; thus it is projected to recover only slowly.
Other central European countries should remain healthy, as long as they continue their commitment to improve their fiscal positions, and increasingly reap the benefits of EU integration.
Current assumptions that high oil and commodity prices will persist should allow CIS oil exporters to maintain momentum through 2008, and neighboring countries will benefit from the exporters’ import demand, especially from a thriving Russia.
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