By Sebastian Tong
LONDON, Nov 25 (Reuters) - Economic growth in eastern Europe
and the former Soviet Union will halve in 2009 from this year as
the financial crisis and a global downturn take their toll, the
European Bank for Reconstruction and Development (EBRD) said on
Tuesday.
Overall growth in the 29 transition economies it invests in
would likely fall to 3 percent in 2009 from its estimate of 6.3
percent this year -- a dramatic fall from the record 7.5 percent
expansion seen in 2007.
Economic growth in central Europe and the Baltics will slow
to 2.2 percent next year from 4.3 percent in 2008, the EBRD said
in its annual transition report.
South-eastern European economies are set to expand 3.1
percent in 2009, less than half of this year's 6.5 percent while
growth in the Commonwealth of Independent States (CIS) and
Mongolia could slow to 3.4 percent, down from the 7.3 percent
forecast for this year.
Rapidly deteriorating economic conditions prompted the EBRD
to revise the region's growth estimates twice this year with
these latest figures representing a downgrade from forecasts on
Nov. 5.
"The depth and duration of the global crisis are unclear,
but the region is now bracing itself for higher unemployment and
lower consumption growth," said Erik Berglof, EBRD Chief
Economist.
Several of its recipient economies had gorged on cheap
external funding during the boom years, and the credit crisis
that began in the developed West has left them struggling with
higher debt costs and weaker domestic currencies.
The EBRD warned there was a risk of even slower growth if
external funding for the region suddenly fell away.
Last week, the London-based bank said it could raise its
investments next year to 7 billion euros ($8.8 billion) -- its
single largest annual investment.
FOCUS DIVERTED
Several economies have been hard hit by the drying up of
international capital flows -- Belarus, Hungary, Latvia, Serbia
and Ukraine are among EBRD recipient countries to have turned to
the International Monetary Fund (IMF) for help.
"Some countries continue to run excessive current account
deficits combined with high foreign currency debt and are
therefore prone to significant output reductions if capital
inflows fall off rapidly," the EBRD said.
The development bank, which was set up in 1991 to help
former communist countries in Eastern Europe make the transition
to market economies, urged recipients to stabilise their banking
systems.
"While the global financial crisis has unsurprisingly
dominated the attention of policy-makers, there is a danger that
this focus can divert needed attention away from the key
long-term growth challenges that face individual countries and
the region," said Berglof.
He said recipient economies should persist in reforming
corporate governance and press on with restructuring and
competition policy in order to sustain long-term growth.
Governments could also substantially raise long-term growth
prospects by using selective industrial policies to foster a
more competitive export mix, the EBRD said.
While many transition countries had developed more
sophisticated export mix, natural resource-rich economies such
as Kazakhstan and Russia were still less diversified.
"If a country's initial export basket is more sophisticated,
future growth is likely to accelerate," said the bank, which
counts 61 countries, the European Community and the European
Investment Bank among its 63 shareholders.
The bank also called on recipients to invest more in
education, saying that many had failed to capitalise on their
relatively strong educational and skills base.
For table of EBRD GDP forecasts, please click: []
(Reporting by Sebastian Tong; editing by Tony Austin)
