Protests have continued since February, with the public calling for an overhaul of the ruling elite, but we expect limited change in the power structure. Economic activity will remain weak, as twin deficits persist and reserves fall. The 2020 budget envisages tightening, but deep reforms are needed. 

EU structural funds have boosted growth in Eastern Europe, allowing for strong income convergence with the rest of the EU. Cuts in the 2021-27 EU budget will lead to smaller contributions, but a sudden slowdown is unlikely, and convergence will continue.

Iraq’s path to recovery is inhibited by continuous political instability and a lack of institutional capacity. While the PM has resigned, there is much uncertainty on meeting protesters’ demands for economic and political reforms. The economic recovery from the war has been at a slow pace.

Portfolio flows to Emerging Markets were $20.3 bn in November. Equity and debt flows were $4.4 bn and $15.9 bn, respectively. Net capital flows into EM were -$23.4 billion in October.

Bank lending remains the main policy tool to boost growth. Macroeconomic imbalances seem manageable at this time. Further stimulus, however, could intensify demand pressures.