After a sharp slowdown in CEE last year because of the effects of the eurozone debt crisis, economists at the European Bank for Reconstruction and Development (EBRD) say that "the worst of the transition region’s problems may slowly be drawing to a close."
An update of the EBRD's outlook for the region puts growth at 3.1% for 2013, slightly lower than the 3.2% forecast in October, but better than 2012's estimated 2.6%.
The bank lowered its growth forecasts for this year in Central Europe and the Baltics by half a percentage point, with growth perspectives for Poland, Hungary, Slovakia and Croatia worsening and those for the three Baltic states seen improving.
In South-Eastern Europe, the EBRD downgraded its forecast for Macedonia and Romania compared with October but upgraded growth perspectives for Albania, Bosnia and Herzegovina, Bulgaria and Serbia.
Worsening growth forecasts for Ukraine, Moldova and Belarus dragged down the average for Eastern Europe and the Caucasus.
Turkey's growth forecast remained the same at 3.7% while Russia's was slightly upgraded to 3.5% from October's 3.3%.
As the likelihood of further worsening of the eurozone crisisdiminishes, downside risks to the outlook for emerging Europe have continued to recede, and the slowdown seems to be bottoming out, according to the EBRD.
RISKS REDUCED
“For the first time in a long while we are now seeing the possibility of a reduction in the risks facing emerging Europe, especially the risks from the eurozone. It is too early to sound the all-clear but there are signs of stabilization,” EBRD chief economist Erik Berglof said.
Exports' decline moderated in the latter part of 2012 and "modest" private capital inflows returned in the second quarter and continued in the third quarter, the bank's report noted. Bank deleveraging continued in the region in the autumn of last year but at a much slower pace, it added.
The EBRD said decisions taken in the eurozone in recent months, such as the European Central Bank's promise to activate its new monetary policy instrument, the Outright Monetary Transactions (OMT) if a country requires help and the steps towards a banking union were likely to have a positive effect on the CEE countries that depend on the single currency bloc.
In the four new countries that the EBRD has taken on in the Southern and Eastern Mediterranean, only Morocco's growth prospect was upgraded by 0.7% to 5.2% for this year.
Recovery in Egypt, which the EBRD sees growing by 3.8% this year, "continues to face significant headwinds" because of the recent return of political turmoil and widespread protests, which are likely to impact business activity, tourism and confidence.