EBRD Downgrades Forecasts for Emerging Economies

The European Bank for Reconstruction and Development (EBRD) said that growth prospects for many emerging economies across Europe and central Asia had deteriorated markedly since the start of the year.

The London-based lender, set up in 1991 and owned by 64 countries, the European Union (EU) and the European Investment Bank (EIB), forecast average growth of 3.1% in the countries that it lends to back in January but has cut that figure to 2.2% in its latest report, timed to appear at its annual meeting in Istanbul, Turkey.

The revised figure compares with a growth rate of 2.6% over 2012 and the EBRD said that the reduction was due partly to a “weak external environment driven by the ongoing eurozone crisis and the resulting mild recession in the single currency area.”

Russia’s economy, which in January was expected to grow this year by 3.5%, is now seen as expanding by only 1.8% – a sharp reduction from the 3.4% achieved in 2012. The EBRD cited lower global demand for Russian energy supplies, public spending curbs and “possible dents to investor confidence” caused by the treatment of foreign investors and the business environment.

Poland, which achieved growth of 1.9% in 2012, is now expected to record no more than 1.2% this year. The EBRD suggested that the country’s relatively high growth in recent years “reflected a number of transient factors, including the rapid absorption of European Union structural funds and the ensuing boom in public investment”. Turkey had already slowed in 2012 as a result of weaker domestic demand but was expected to pick up again this year.

Erik Berglof, chief economist at the EBRD, also singled out problems in regional leaders such as Russia, Poland and Turkey, which he said were impacting on neighbouring countries. “The reasons for the slowdown in growth differ from country to country, but it should be a wake-up call across the region to re-energise structural reforms, which have been on hold since before the global crisis,” he added.

Berglof said that he wanted to see national measures introduced to promote the entry of new companies, strengthen competition and remove obstacles to business. While he recognised that some might regard this as a “tired mantra” and privatisation had been discredited in some countries, change was nonetheless vital in Russia but also in badly-hit eurozone economies such as Greece and Portugal.

On a more positive note, the EBRD believes that the regional economy – extending to central and eastern Europe, the Baltic states, the Caucasus, central Asia and the southern Mediterranean region – will see growth pick up in 2014 and comfortably exceed the previous two years with a rate of 3.2%.

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