Cover -- Contents -- Executive Summary -- 1. Outlook: Navigating Turbulent Waters -- Advanced Economies -- Emerging Economies -- 2. Financial Turbulence: Testing Resilience and Dampening Growth -- How Financial Turbulence Spread to Europe -- Impact on Financial System Resilience -- Impact on the Real Economy -- 3. Convergence in Emerging Europe: Sustainability and Vulnerabilities -- Overview -- Sustaining Growth -- Addressing Vulnerabilities -- Running Sound Macroeconomic Policies -- Policy Agenda -- References -- Boxes -- 1. Spillovers from Weaker U.S. Growth -- 2. Financial Turbulence: Policy Lessons -- 3. Understanding Food Price Inflation in Emerging Europe -- 4. Spillover Risks among Major EU Banks -- 5. Regional Financial Interlinkages and Contagion Channels -- 6. Banks' Risk Profile, Credit Growth, and the Real Economy -- 7. Real Sector Implications of Financial Turbulence for an Emerging Market Economy -- 8. Potential Growth Estimates in Emerging Europe Based on a Growth Model -- 9. Current Account Sustainability in the EU-10 -- Tables -- 1. European Countries: Real GDP Growth and CPI Inflation, 2006-09 -- 2. European Countries: External and Fiscal Balances, Government Debt, 2006-08 -- 3. Measuring the Impact of Risk Repricing on Selected Markets -- 4. Net Bank Exposure to U.S. Subprime Mortgage Markets -- 5. Estimated Losses on Mortgage-Related Subprime Bank Exposures -- 6. Output Response to Financial Shocks: Simulation Results -- 7. Response of GDP Growth to a 10 Percentage Point Decline in Credit Growth -- 8. Determinants of Growth in Emerging Europe, 2003-07 -- 9. Sustainability of Current Account Deficits Based on a Model of Regional Convergence, 2007 -- 10. Responses of External Debt-to-GDP Ratio to Adverse Shocks, 2007-11 -- Figures -- 1. Europe and the United States: Real GDP Growth, 2001-09 -- 2. Key Short-Term Indicators.

3. Euro Area: Contribution of Food and Energy to Headline Inflation, January 2006-December 2007 -- 4. Euro Area: Cost of Financing, 2003-08 -- 5. Spreads of Three-Month Interbank Rates over Expected Policy Rates, 2007-08 -- 6. Changes in Credit Standards for Loans to Enterprises and Households, 2005-08 -- 7. Measures of the Euro Exchange Rate, 1999-2008 -- 8. Growth in Emerging Europe, 2001- 09 -- 9. Emerging Europe: Confidence Indicators, January 2006-February 2008 -- 10. Emerging Europe: Sovereign and Corporate Bond Spreads, January 2007-March 2008 -- 11. Emerging Markets: Private Sector External Bond Issuance, 2006-08 -- 12. Emerging Europe: Bond Spreads and Current Account Deficits -- 13. Central and Eastern Europe: Credit Growth and House Prices, 2002-06 -- 14. Estimating Shifts in the Global Price of Risk, 2007-08 -- 15. Reassessing Risks across Asset Classes and Borders -- 16. Euro Area Lending to Nonfinancial Corporations and Households, 2000-08 -- 17. Changes in the Balance Sheet of the European Banking System -- 18. Expected Default Frequencies, 2007-08 -- 19. Implied Spreads, 2007-08 -- 20. Market Leverage versus Asset Vol Volatility of Exposed EU Banks, 2007-08 tility -- 21. European Banks: Market Evaluation of Assets in Distress -- 22. Convergence in Emerging Europe and in the Rest of the World, 2002-06 -- 23. GDP per Capita and Current Account Balances, 2007 -- 24. Emerging Europe: Value Added by Sector, Contributions to Real GDP Growth, 2002-06 -- 25. Emerging Europe: Domestic and External Demand, Contributions to Real GDP Growth, 2002-06 -- 26. Emerging Europe: Growth Accounting, 2002-06 -- 27. Growth and Private Sector Credit Growth, 2002-06 -- 28. Emerging Europe: Contributions to Current Account Deficit, 2003-07 -- 29. Emerging Europe: FDI Coverage of Current Account Deficit, 2002-06.

30. Emerging Europe: Change in Current Account Balance and Real Effective Exchange Rate Appreciation, 2003-07 -- 31. Emerging Europe: Percentage Change in Export Market Shares in the World Economy, 2002-06 -- 32. Current Account Model Predictions and Actual Balances in Selected New EU Members -- 33. Emerging Europe: Ratio of Short-Term Debt (Remaining Maturity) to Foreign Exchange Reserves, 2007 -- 34. Emerging Europe: Lending Interest Rate minus Taylor Rule Interest Rate, 2003-07 -- 35. Emerging Europe: Monetary Conditions Index, 2007 -- 36. Change in Actual and Structural Fiscal Balances, 2003-07.