Weekly Economic Briefings > Emerging Markets Weekly Economic Briefing > Global

Central and Eastern European economies have continued to perform well compared to other parts of Europe in recent years not least due to investment, which has grown by a solid 5% a year since late 2013. Despite a near-term slowdown, we see the CEE region continuing to post relatively strong growth in the medium to long term, with both investment and consumption remaining supportive. The near-term slowdown will be to a large extent driven by the ending of the current EU funding programme in 2015. This will see public investment slow significantly, exerting a 0.4-0.5pp drag on GDP growth in both 2015 and 2016. Meanwhile, although consumption will remain reasonably strong, its growth will also ease as the boost from lower oil prices fades.To soften the negative impact on GDP growth, it will be important for Eastern European economies to sustain private sector investment, which has been strengthening since 2014 albeit still outpaced by public sector investment. Encouragingly, rising corporate operating surpluses suggest that the outlook for private investment is positive, although anaemic credit growth (except in Poland) remains a downside risk. In the medium to long term, we believe that Eastern European economies lower exposure to slower growth in China, solid bank balance sheets and low external imbalances which in turn make them less vulnerable to US rate hikes leave the region well-placed to benefit from improving activity in the Eurozone before the next round of EU funding gathers steam. Robust growth in fixed investment should resume as a result.