(Adds details, background)
By Sebastian Tong
LONDON, May 7 (Reuters) - The European Bank for
Reconstruction and Development (EBRD) on Thursday slashed its
2009 forecast for emerging Europe to a 5.2 percent contraction
from the 0.1 percent growth predicted earlier this year.
Cutting its forecasts for the second time in six months, the
London-based development bank said the global credit
crisis was now severely affecting the corporate sector and
leading to large declines in output and domestic consumption.
It said Russia's economy -- by far the region's biggest --
would shrink by 7.5 percent estimate based on the government's
first quarter figures, dwarfing the 4.7 percent contraction
forecast by analysts in a Reuters poll last week. []
The region's economy expanded 4.2 percent last year, EBRD
said, slightly slower than the 4.8 percent growth the bank had
expected.
But it also now sees emerging Europe growing 1.4 percent in
2O10 helped by a "sustainable, gradual recovery" in the second
half of the year.
"There are downside risks to these predictions. But now
there is also upside potential," said EBRD Chief Economist Erik
Berglof in a statement. "Our underlying outlook assumes
continued external engagement, particularly from the western
parents of banks in the region."
The bank noted that unemployment and non-performing loans in
the region had yet to peak and could still exert significant
stress on the banking system.
The EBRD first revised its growth estimates for the region
in January after initially predicting 3 percent 2009 economic
expansion for emerging Europe in November.
RUSSIA, TURKEY, UKRAINE
The Baltic states of Latvia, Lithuania and Estonia will all
show double-digit declines in GDP this year, while in Central
Europe a severe recession in Hungary will be partially offset by
flat growth in Poland, the bank said.
Its forecast for the EU's biggest ex-communist economy falls
about halfway between the minimal growth predicted by Warsaw and
the shrinkage seen by the European Commission and IMF.
The bank said countries further east and in the Caucasus
faced an even sharper downturn due to their fragile financial
systems and greater dependency on commodities.
"Ukraine in particular has experienced a triple blow, with
much lower steel export prices and volumes, higher energy import
prices, and a sharp reduction in external financing," the EBRD
said, forecasting the economy to contract 10 percent this year,
twice the 5 percent fall initially estimated.
Russia's 7.5 percent decline in 2009 compared to the EBRD's
January forecast of 1 percent growth for the year. But the bank
said Russia could see a rebound in the second half of next year,
helped by government fiscal stimulus.
Turkey, the EBRD's newest recipient country, is seen
suffering a 5.5 percent fall in gross domestic product this
year, larger than the bank's earlier forecast of 3 percent.
"Common to most of these forecasts is the view that the two
worst quarters, in terms of quarter-on-quarter output declines,
are behind us at this point. We still predict continuing output
declines in most economies for the remainder of this year, but
at far milder rates," the bank said.
Set up at the end of the Cold War to help former communist
economies adjust to free markets, the EBRD operates in some 30
countries including Turkey and Mongolia.
(Reporting by Sebastian Tong; editing by Patrick Graham)
