"Growth in most of the Central, Eastern, and South-Eastern European countries is recovering, partly driven by the recovery in the euro area, but growth in the region as a whole will be held back. We have marked it down since last October, in part because of the contraction in Ukraine, and slowdowns in Russia and Turkey.
External funding conditions have also become more challenging. Even before the tensions in Ukraine, we saw that capital flows into the region had started to reverse, with portfolio flows turning negative toward the end of 2013. And of course, this comes on top of the ongoing deleveraging that the region has seen.
In the near term, these factors will offset--perhaps even more than offset--the tailwinds from the recovery in the euro area.
Although the reversal in capital flows hurts most emerging markets, the hit to those with stronger policy frameworks and fundamentals has been less. This underlines the case to strengthen policies. Those with exchange rate and monetary policy flexibility should continue to use it as the first line of defense against volatility. All countries, especially those with weaker fundamentals, need to address legacy issues and problems exposed by the crisis, structural weaknesses that hold back growth and keep unemployment high, nonperforming loans that hamstring credit and exhausted fiscal buffers".
Source: IMF 2014 SpringMeeting
