Dow Jones Newswires
The European Bank for Reconstruction and Development on Friday said the economies of central and southeastern Europe will grow more slowly than it previously forecast, reflecting a delayed recovery in the euro zone, with which the region has close trade and financial links.
Updating projections in July, the EBRD said it now expects eight economies in Central Europe and the Baltic States to grow by 1.7% this year and 1.9% next, having previously forecast growth of 2.0% and 2.1%.
It now expects seven economies in southeastern Europe to grow by 0.7% this year and 1.7% next, having previously forecast growth of 1.0% and 1.8%.
“Most countries in central and southeastern Europe as well as Ukraine will likely see lower growth than previously forecast as the baseline outlook for the euro area has worsened further,” the EBRD’s economists said.
The EBRD said it now expects the euro-zone economy to stagnate in 2013, having previously expected a modest recovery from a contraction this year.
“The euro-zone recovery will be delayed relative to earlier forecasts,” it said. “Real activity in the euro zone will suffer in the near term both due to fiscal contraction and credit decline.” The development bank said that will affect exports from central and southeastern Europe, as well as bank lending and foreign investment.
However, the EBRD’s economists said that following the European Central Bank’s recent announcement of a new program designed to ease tensions in the euro zone’s government bond markets, and steps by political leaders toward forming a banking union, there is a reduced risk of “an escalation of the euro-zone crisis,” such as the exclusion of Italy or Spain from international bond markets, and the associated failures of a number of large banks.
The EBRD left its forecasts for Russia unchanged, and said it expects Turkey’s economy to achieve a “soft landing.” Indeed, the development bank raised its growth forecasts for the latter, and now expects gross domestic product to expand by 2.7% this year and 3.5% next.
The development bank also raised its growth forecasts for Egypt, Morocco, Jordan and Tunisia, although it warned that they “continue to face dire macroeconomic challenges, amid ongoing social and political uncertainty, and other region-wide tensions.”
The EBRD was established in 1991 to help countries in Eastern Europe and the former Soviet Union make the transition from centrally planned to market economies. It has done that largely by investing in private companies, either by making loans or buying equity stakes.
It invested 9 billion euros in its 29 countries of operation in 2011, a record for a single year. Those 29 countries have now been joined by Egypt, Jordan, Morocco and Tunisia.
Write to Paul Hannon at paul.hannon@dowjones.com
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