Moody's Economy.com forecasts at least two quarter-point interest-rate increases for Western Europe by year's end. It is expecting gross domestic product growth of 2.5% in the region, down from last year's 2.7%. "The slowdown should be fairly modest," said Katrin Robeck, a Moody's economist. "But it's likely to spread into 2008 across the euro zone. "In contrast, Poland, for example, is seeing far more robust economic activity. The country's 2006 GDP growth rate of 5.8% should increase to about 7% for the first quarter of 2007 when final data come out, she added. For the year, Ms. Robeck expects Poland's GDP to run in excess of 6%.
Ralf Oberbannscheidt sees Russia's growth continuing at a faster pace than Western Europe's. He manages three foreign closed-end funds under the DWS Scudder family, which is a unit of Deutsche Bank AG. Yet in recent months, he has decreased exposure to Russia and put some of those profits in Poland, Hungary and the Czech Republic. "We're looking at the energy and financials sectors in those markets," he said. "Housing markets are growing, and infrastructure improvements have been spreading for several years." Some of the larger and more stable economies in Eastern Europe help mitigate the political risk of investing in Russia right now, Mr. Oberbannscheidt says, noting that the country's presidential elections are coming up.
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