Political uncertainty in the South and East Mediterranean (Semed) region remains a drag on growth in the EBRD region, offsetting the expected return to positive growth for Russia, and accelerated growth in southeastern Europe and central Asia, the bank said on Wednesday.
At 2.4%, the projected average rate of growth for 2017 is higher than the 1.8% reported in 2016, but slightly weaker than projected. Growth is forecast to accelerate to 2.8% in 2018.
Growth in the Semed region slowed to 3.4% in 2016 and the EBRD has revised 2017 growth down slightly to 3.7%. However, the bank expects it to reach 4.1% by 2018 as agricultural output normalises after a year of poor rainfall, and Egypt returns to competitiveness.
While economic and political uncertainty persists, global market stability has remained the prevailing theme over the past six months. The election of Donald Trump as US president in November 2016 initially shocked global markets, but emerging markets quickly recovered.
The EBRD has not revised its growth outlook since the US election though it noted that, along with the UK’s decision to leave the EU, economic policy uncertainty had increased. It also noted that higher rates in the US had not had a detrimental impact on EM growth.
Russia has returned to growth for the first time since the introduction of US sanctions following its invasion of Crimea, though the ERBD will not unfreeze financing to the country at this stage.
The pick-up in Russia, combined with higher oil prices in 2017, is expected to support a slight increase in growth in central Asia, eastern Europe and the Caucasus (EEC), although Azerbaijan and Belarus are projected to remain in recession.
Growth in southeastern Europe averaged 2.9% in 2016, and is expected to strengthen to 3% in 2017 despite internal political problems, along with that in central Europe and the Baltic States, whose GDP is expected to growth at 3.1% in 2017.
TURKEY’S TWIN DEFICITS
The International Monetary Fund will say today (Thursday) that it is less optimistic and expects overall growth in central, eastern and southeastern Europe to reach 2.2% in 2017, although this is a jump from the 1.5% it reported in 2016.
The EBRD revised down its projection for Turkish growth to 2.6% in 2017 from 2.9% in 2016, and expects to lend less to the country than in the previous two years. Turkey remains the EBRD’s largest market, with the bank investing €1.9bn in the last two years.
While EBRD president Suma Chakrabarti said the bank planned to maintain its commitments despite the increasingly autocratic regime, he expected it would lend around €1bn to Turkey this year.
“The political context has an impact on market sentiment and how our partners are looking at investment plans,” he said. “The lending will not be as large as in previous years.”
Security concerns and geopolitical risk have compounded concerns about Turkey’s twin deficits, and capital outflows, weaker tourism receipts and a weaker investment climate have largely accounted for the drag on growth in the Semed region as a whole.