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Europe and Central Asia

GDP in developing Europe and Central Asia increased an estimated 5.6 percent in 2011, despite the renewed financial turmoil and weakening Euro Area demand in late 2011. The growth in 2011 was supported by the robust domestic demand and good harvests in countries such as Russia, Romania and Turkey. Bad weather earlier this year, renewed tensions in Euro-area, capacity constraints in some countries and deleveraging by European banks are projected to slow regional GDP growth to 3.3 percent in 2012, before a modest recovery begins in 2013 and 2014 with growth of 4.1 percent and 4.4 percent, respectively. Domestic demand is expected to remain robust in most resource-rich economies benefiting from still high commodity prices, but capacity constraints will hold growth back in Russia over the medium-term. Among regional oil importers, high commodity prices will contribute to slower growth, deteriorating current accounts and fuel inflation. Upcoming elections are expected to delay progress in fiscal adjustment in several middle income countries in the region while monetary policies are likely to remain loose given still ample spare capacity in most economies.