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The positive economic developments in the countries of New Europe during the second half of 2006 exceeded analysts’ expectations. With the exception of Turkey, real GDP growth in Q4-2006 accelerated above our own projections, driven primarily by private consumption, credit expansion and gross fixed capital formation. At the same time, inflation either declined, i.e. in Romania and Serbia or remained under control, i.e. in Poland and Bulgaria. Only Ukraine is facing a double digit rate of inflation, due mainly to hikes in gas prices.