Global growth slowing, not stopping
The global outlook continues to unfold in line with our view: the initial, most dynamic phase of the recovery is now losing momentum, and growth is decelerating in both advanced economies and emerging markets. In the major emerging economies, growth should remain robust; in the advanced economies, however, it is settling on a lackluster pace. This deceleration is normal and expected, as the impulse from fiscal stimulus and from the inventory cycle is fading out of the picture.
Since our last quarterly publication, the CEE region has continued to show recovery. Looking ahead, we expect a continued recovery, although on the whole the pace of gains is unlikely to accelerate much from here and in some cases will slow. From a regional contraction of 5.7% of GDP last year, we forecast real GDP gains of 3.6% this year and 3.8% next year. Against this background of a continued recovery in economic activity, inflation pressures are on the rise, albeit from record-low rates. We forecast annual average inflation in the region next year at 6.6%, up from 5.8% this year.
For the most part, fiscal consolidation in the region remains on track. We project an average budget deficit in the region next year of 4.5% of GDP compared with 5.4% last year and 7.0% in 2009. In terms of "IMF" countries, risks have increased in some cases over recent months although they remain manageable.
In contrast with public sector balance sheets, external indebtness remains more of an issue in some countries. Those countries that were forced towards IMF programs continue to face higher external financing requirements over the medium-to-long term. Taking this into account, rollover into some form of renewed IMF agreement in most cases would represent the smoothest transition once current programs expire. Against such contrasting backdrops for economic activity and indebtedness, we expect monetary policy and currency performance across the region to vary with Czech Republic, Poland, Russia and Turkey outperforming.