EBRD cuts forecasts for some CEE countries

The eurozone crisis continues to have a negative impact on economic performance in emerging Europe, which is likely “to live through another challenging year before any real recovery can start,” the European Bank for Reconstruction and Development (EBRD) said in a statement on Friday.

Growth in the transition region is expected to drop to 2.7% this year from 4.6% last year, before picking up “modestly” to 3.2% next year, according to the EBRD’s latest quarterly economic assessment.

The bank’s economists revised down their forecast for Ukraine, which is now expected to grow by just 1% in 2012, a 1.5 percentage point cut from the EBRD’s July forecast and compared to expansion of 5.2% last year.

“Ukraine is feeling the squeeze from both its two biggest markets, the EU and Russia,” the bank said.

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Forecasts for Slovenia, Hungary, Croatia and Serbia – all of which are in recession – were also revised down.

Slovenia’s economy is expected to contract by 2.5% this year and by 2% in 2012, Hungary is seen shrinking by 1.5% this year and posting just 0.4% growth next year, Croatia is forecast to contract by 1.9% but is seen rebounding by 1.2% next year and Serbia is set to shrink by 0.7% this year and grow by 1.1% the next.

POLAND TO SLOW

Poland’s growth is seen slowing to 2.5% this year, a slight downgrade from July’s 2.9% forecast and compared with last year’s 4.3% growth. It is seen slowing further to 2.2% next year. Slovakia is expected to grow by 2.7% this year and by 2.3% next year.

Romania is seen advancing by just 0.5% this year despite strong performance in the second quarter and by 1.9% next year. Bulgaria’s growth is seen at 1.2% for 2012 and 1.7% for 2013.

Russia’s growth is seen at 3.2% this year, a slight uptick from July’s forecast of 3.1%, and at 3.3% next year.

“The effects of the European recession are spreading further east,” the EBRD said. “As Russian growth slows down, weighed by the eurozone, economies of the Caucasus and central Asia – not closely integrated with the EU markets – might start feeling the pain.”

The pace of cross-border bank deleveraging slowed in the first half of 2012, with foreign banks’ capital flight easing in the first quarter as a result of the European Central Bank’s “massive liquidity operations,” the bank said, but added that the retreat picked up in the second quarter as the impact of the ECB measures waned.“Banks have tried to replace the loss in external funding by domestic deposits. As this has been only partially successful, real credit continues to contract in almost all of central and south-eastern Europe and the Baltics,” the EBRD said.