Next Year

Growth is resuming in Eastern Europe. It is not yet back to its full potential, but many countries in the region, among them Russia and Poland, will grow around 4% in 2011, which is more than twice as fast as Western Europe. Turkey, Ukraine and Kazakhstan may surprise on the upside and grow more than 5%, while the recovery is slower in Southeastern Europe, where growth will stay around 2%. Inflation and interest rates will be at record lows, which will spur rapid credit growth to unleveraged households in countries like Turkey, but also in Russia and Poland. 

The main risks are external and related to remaining instabilities in the global financial system. There is a whole range of issues that could upset markets, including those in Eastern Europe. We do not think that the global economic recovery will be disturbed by these issues, leading to a double dip, but they could very well have a substantial impact on financial flows and risk appetite, as well as on growth, within Europe.

Russia is our top bet for 2011, on the back of very attractive valuations, strong eps growth, and solid macro fundamentals. News related to WTO entry, privatisation and the forthcoming elections could surprise the market positively as expectations are low on those fronts. There are plenty of interesting opportunities elsewhere Eastern Europe, like in the Balkans, but Russia is likely to be in focus.

All in all, we are likely to see continued divergence in terms of growth and performance in Eastern Europe, in an increasingly positive yet uncertain external environment. In such an environment, we believe it will pay off more than ever to be focused, dedicated and long term.