LONDON, Sept 4 (Reuters) - The recovery in eastern Europe
will be slow and drawn out and risks remain, notably in Russia,
Ukraine, Latvia and Hungary, the European Bank for
Reconstruction and Development's chief economist said on Friday.
The development bank for emerging Europe revised its 2009
growth forecast for the region down in May, to a contraction of
5.2 percent.
Erik Berglof told a conference that forecast was likely to
be revised down again in October, echoing comments made this
week by EBRD president Thomas Mirow. []
"There are a lot of second round effects that are now
hitting the region," Berglof said.
"We will see a drawn-out recovery, in our view it is
premature to exit. We need to keep on fighting."
Berglof said the slowdown in most countries in the region,
with the exception of Lithuania, was bottoming out, but some
countries were doing better than others.
"Russia is a big question mark, it is important on its own
and for many countries in the region. There are three countries
that are flashpoints -- Ukraine, Latvia, Hungary," he said.
However, he said devaluation in Latvia, which markets have
speculated over in recent months, would not be helpful, due to
the domestic housing sector's exposure to foreign currency
mortgages.
"There would be very significant costs of a devaluation.
Particularly in this fragile recovery, this could have an
important effect on sentiment."
Berglof said weak first and second quarter growth data would
hit the bank's forecast for emerging Europe.
"The flavour will be one of a further decrease for this
year, we are pretty sure about that."
However, the EBRD was likely to increase its growth forecast
for 2010, Berglof added.
The EBRD in May forecast growth for the region of 1.4
percent next year.
The banking crisis in the region was not as great as it
seemed a few months ago, Berglof said, but EU members in the
region needed to scale back their ambitions for joining the
euro.
"For most of the countries we should think of accession as
some way off," he said.
"We need to look at ways to develop local currency markets."
(Reporting by Carolyn Cohn; Editing by Ruth Pitchford)
