BLOOMBERG | By Agnes Lovasz
Eastern European economies will expand at half last year’s pace in 2012 as fallout from the euro-area debt crisis spreads, the European Bank for Reconstruction and Development said.
The 29 east European and central Asian countries where the EBRD invests will grow 2.7 percent in 2012, down from 5 percent last year, the London-based bank forecast today in an e-mailed report, cutting a May projection for 3.2 percent growth. Egypt, Morocco, Jordan and Tunisia, where the bank is expanding, will grow 2.1 percent, 0.1 percentage point less than seen before.
Central Europe, the Balkans and the Baltics are suffering from contagion because of trade and banking links to the debt- ridden euro area. Commodity producers including Russia, the world’s largest energy exporter, are also at risk as the turmoil threatens global demand for raw materials.
“The biggest downside risk for the transition region is a possible further deterioration of the euro-zone crisis,” said the EBRD, which was set up in 1991 to help transform the economies of former communist countries. The situation “is now impacting growth across emerging markets.”
Emerging-market stocks fell to a seven-week low after the International Monetary Fundtoday said China’s economy faces significant downside risks. The MSCI Emerging Markets Index (MXEF) lost 0.6 percent to 904.47 as of 8:46 a.m. in London. The Romanian leu, the Serbian dinar and the Hungarian forint have been among the world’s 10 worst performers in the past month, sliding 3.2 percent, 2.8 percent and 0.9 percent against the euro, respectively.
Europe’s debt crisis escalated this week as Moody’s Investors Service cut the outlooks on the Aaa credit ratings of Germany, the Netherlands and Luxembourg to negative and Spanish borrowing costs soared on speculation the nation may need a second rescue after accepting as much as 100 billion euros ($121 billion) to bolster its banks.
“A timely implementation” of measures agreed at a June summit, where leaders opened the way to directly recapitalizing banks using bailout funds, should mitigate risks to eastern Europe, the EBRD said.
Russia’s 2012 growth outlook was cut more than any nation’s except Moldova, with the EBRD lowering its forecast by 1.1 percentage points to 3.1 percent. Croatia, Hungary and Slovenia will probably suffer “double-dip” recessions this year as gross domestic product drops 1.2 percent, 1.3 percent and 2 percent, the EBRD said.
Still, the bank increased its growth projection for Poland to 2.9 percent, citing domestic demand, and its forecast for Slovakia to 2.6 percent because of strong exports to Germany.
Credit in eastern Europe, where western lenders such as UniCredit SpA (UCG) and Erste Group Bank AG (EBS) own three-quarters of the banking industry, is suffering as stricter regulatory requirements reduce funding to the region. Bank lending from February to April adjusted for inflation only expanded in Poland and Slovakia, according to the EBRD.
“Cross-border funding of local banks in the central Europe and Baltic region and in southeastern Europe is still shrinking,” albeit at a slower pace, the EBRD said. “Reduced availability of cross-border finance for local banks has translated into continued credit contraction in most of the new EU members, notwithstanding bank efforts to at least partially replace cross-border funding with higher deposits.”
GDP in eastern Europe and central Asia will expand 3.1 percent in 2013, the EBRD said, lowering May’s 3.7 percent forecast. The four north African countries will grow 3.7 percent next year, unchanged from May’s projection.
To contact the reporter on this story: Agnes Lovasz in Astana atalovasz@bloomberg.net
To contact the editor responsible for this story: Balazs Penz atbpenz@bloomberg.net
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