MacroScope

from Summit Notebook:

Is emerging Europe out of the woods yet?

A surge in portfolio inflows is flooding into emerging central Europe, although yield-hungry investors are picking solid HUNGARY IMF/MATOLCSYpolicy and higher growth over countries still struggling to put the crisis behind them.

After deep contractions across the region, a two-speed recovery is underway, with countries boasting better debt fundamentals like Poland and the Czech Republic for the moment ahead of those who depend on foreign lending.

Investors are also dipping into countries like Hungary, but struggles by the new centre-right Fidesz government to get its budget deficit under control mean it is lagging for now, along with fellow International Monetary Fund benefactor Romania.

"There has... been clear differentiation between the more robust and the weaker economies of the region," Goldman Sachs wrote in a research note on the region.

"We believe that the region's stronger economies -- namely, Poland, Turkey, Israel and the Czech Republic -- will be the first to see an acceleration in financial inflows both in debt and, increasingly, equity." Turkey and Israel are often grouped with emerging European markets.

A jagged global recovery… but still no double dip

The latest Reuters quarterly economic outlook, based on surveys of more than 600 economists across Asia, Europe and North America smells a bit of danger.

cracked earth.jpgGrowth is looking very uneven. Inflation is a worry here but not there. Unemployment looks to remain perilously high.

It also has a whiff of the surveys Reuters conducted a few years ago just before the Great Recession set in, when economists were saying we’d all muddle through with a bit of a slowdown and don’t worry about a thing. How wrong they got that one.