EBRD sees broadening recovery in emerging Europe, region remains divided on individual outlooks

Newsroom 29/10/2010 | 16:44

Emerging Europe is gradually experiencing a more broadly based economic recovery, but  the region remains sharply divided between countries benefiting from rising commodity prices and capital inflows and others that are expected to remain in recession or see only a feeble recovery in 2010, according to EBRD’s latest economic outlook.

The EBRD’s new report predicts overall growth in the EBRD region of 4.2 percent 2010 and 4.1 percent in 2011, compared with a July prediction of 3.5 and 3.9 percent,
respectively. The region as a whole contracted by 5.5 percent last year.
Despite the upward revision since July, the EBRD region will show considerably lower growth compared with some other emerging markets. South-eastern Europe is expected to continue showing particular weakness.

While catch-up growth rates in the region will be higher than in advanced Europe, they will remain below boom-related pre-crisis levels. However, with the implementation of appropriate policies, growth rates are likely to be more sustainable in the future.

With some exceptions, the variations in the economic outlook reflect a divide between Central Europe and the Baltics (CEB) and south-eastern Europe, where growth is expected to remain broadly modest or even be negative, and eastern Europe, the Caucasus and Central Asia, which are expected to experience more robust growth.

The report sees more upside possibilities than downside risks. However, it points out that precisely those short-term factors that are supporting some economies, such as strong capital flows, could pose policy challenges in the medium term.

Broken down by sub-region, the report notes that CEB has benefited in 2010 from a stronger than expected recovery in western Europe. As fiscal retrenchment continues, growth will be limited to 3 percent in this sub-region in 2011 – slightly less than the level projected in July. Growth of 2.2 percent is expected this year for CEB.

South-eastern Europe is expected to contract this year, by 0.6 percent, before seeing growth of 1.6 percent in 2011. While exports in this region are growing rapidly in most countries, domestic demand remains sluggish and many countries face challenges on the fiscal front.

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