EBRD slashes growth outlook to 2.2%
The EBRD cuts its 2013 growth forecast by a third to just 2.2%, pointing directly to problems in Poland, Russia and Turkey
The EBRD has painted a dismal outlook for the region in its key economic forecast released yesterday, punctuated by a few meagre spots of light.
It slashed its outlook for the region's GDP to 2.2% for this year from a previous forecast of 3.1% just four months ago.
A poor start to the year virtually across the region has dashed hopes that Central and Eastern Europe (CEE) and Central Asia would emerge this year from the shadows that still engulf the eurozone.
Talking to media at the EBRD conference in Istanbul, the multilaterals chief economist, Erik Berglof, pointed directly to slowing growth in three, key economies: Poland, Russia and Turkey, which together make up two-thirds of all regional growth.
All are troubled, but in different ways and to differing extents. Berglof lauded Turkey for the way it dealt with its credit-fuelled economic bubble.
Hot money inflows and massive credit expansion led Turkeys economy to expand by 8.5% in 2011 but just 2.2% last year. Despite this, Turkish gross domestic product (GDP) is expected to grow at just north of 3% this year, with Berglof tipping a soft landing for one of the developing worlds rising stars.
Russia and Poland paint a far gloomier picture. Demand and supply factors, plus a softening of oil prices key to the underlying strength of Russias finances have hit the worlds eighth largest economy hard. Three-term president Vladimir Putin returned to office last year aiming to boost economic growth to between 6% and 7%, yet recent forecasts tip GDP to expand by just 2.4% in 2013, hit by falling fixed investment.
Poland is another concern, Berglof warned, noting that the beating economic heart of the CEE region, struggling to contain its fiscal deficit and reboot retail spending, had run out of fiscal space.
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Indeed, concerns run deep across the region. Inflation is starting to bite in Russia. Remittances, a key driver of basic economic survival for millions of families in Southeastern Europe, including the Balkans, are dwindling.
In the transition states of Middle East and North Africa, more macroeconomic stability is needed simply to permit institutions like the EBRD to work with, and fund, local private corporations.
Credit growth remained very weak across the region, Berglof warned, while non-performing loans remain at dangerously high levels in the likes of Ukraine and Kazakhstan.
Egypt, Morocco, Tunisia and Jordan, the states now transitioning into the EBRDs purview, are all threatened by yawning trade and current account deficits and soaring unemployment. There is not much reason for optimism, Berglof said.
What optimism there is can be found in unusual places. The threat of deleveraging the process of Western lenders, post-financial crisis, withdrawing capital from subsidiaries and standalone operations in CEE and Central Asia continues to subside.
The speed of deleveraging continues to decelerate across the region, Berglöf said, but added that the process was not over yet.
But a few economies, including several that were hit particularly hard by the twin financial and eurozone crises, are actually starting to benefit from their chronic weakness. Berglof said exports were on the rise in several countries. Latvia, Lithuania, Armenia and Kyrgyzstan, as well as much of the Balkans, are seeing their exports soar at an annualized rate of more than 10%, according to the latest EBRD data.
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