May 12, 2013

Emerging economies suffering eurozone fallout, EBRD warns

The damage being inflicted on some emerging economies by the continuing eurozone crisis was highlighted on Friday by new figures from the European Bank for Reconstruction and Development.


The London-based lender, owned by the UK and more than 60 other governments worldwide, has significantly downgraded its 2013 growth forecasts in the countries it lends to from the 3.1% it expected in January to 2.2%.

That compares with a growth rate of 2.6% over 2012 and was blamed partly on a "weak external environment driven by the ongoing eurozone crisis and the resulting mild recession in the single currency area."

The EBRD, which is holding its annual meeting in Istanbul, provides money in more than 30 countries starting in eastern Europe but stretching through the Balkans all the way into North Africa.

Erik Berglof, chief economist at the EBRD, highlighted particular problems hitting regional leaders such as Russia, Poland and Turkey, which were dragging down neighbouring countries.

"The reasons for the slowdown in growth differ from country to country, but it should be a wake-up call across the region to re-energise structural reforms – reforms which have been on hold since before the global crisis."

Berglof said he wanted to see national measures which would promote the entry of new companies, strengthen competition and remove obstacles to business.

He understood that some might feel that was a "tired mantra" and accepted privatisation had been discredited in some countries, but insisted change was vital in Russia but also in places such as Greece and Portugal.

"Structural reforms are much more part of the solution than much more austerity ... (there is) little room for more austerity."

But he also expressed concerns about "unconventional demand-boosting measures" being used to support small and medium sized businesses in Hungary and Poland.

The economist feared they could become more permanent features rather than temporary stimulus packages.

There were "no quick fixes" to kickstart commercial activity but the EBRD in its latest Regional Economic Prospects report said it expected economic growth in its client countries to rise to 3.2% in 2014.

One of the continuing bright spots has been the Baltic states where economies are expected to grow even this year by 3%.

The worst hit are countries such as the Ukraine which is heavily dependent on Russia. A growth figure of 0.2% in 2012 is expected to slump to a deficit of 0.5% in 2013, according to the EBRD.

Russian GDP growth fell in the first quarter of this year to 1.1% compared with 5% 12 months earlier. The European bank blames falling oil prices but also increased state intervention.

"Investor confidence has likely been dented following the TNK-BP buyouts by (state-owned) Rosneft. And other setbacks with business environment and civil society reforms," it said.

The performance of the EBRD transition economies compares negatively with those of the still buoyant Asian countries such as China and India.

guardian.co.uk

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