Eastern Europe growth to halve, bank says

Overall growth in Central and Eastern Europe as well as in Central Asia will halve next year, the European Bank for Reconstruction and Development (EBRD), helping build market economies in the region, has said.

According to the EBRD figures published on Tuesday (25 November), economic growth of 7.5 percent in 2007 is set to fall to 6.3. percent this year and further drop to 3 percent in 2009.

Economies of Central Europe and the Baltics will see a decline from 4.3 percent this year to 2.2 percent in 2009, while south-eastern Europe will experience even sharper fall from 6.5 percent to 3.1 percent in the same period of time.

Conditions in Latvia are most severe, with the country set to ask the International Monetary Fund and the EU for a bailout of as much as €3 billion ($3.85 billion) to shore up its economy.

“Latvia will be able to ask a bit more, €2 billion, or €2.5 billion to €3 billion,” Latvian finance minister Atis Slakteris was cited as saying by the Bloomberg on Tuesday.

After experiencing high growth of 10.3 percent in 2007, the Latvian economy growth is set to fall to only 0.4 percent this year and to shrink 0.9 percent in 2009.

The EBRD says that the entire region of 29 countries, where it invests, is now bracing itself for higher unemployment and lower consumption growth. An additional risk of even slower growth lies with external funding possibly falling away.

“In particular, 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,” it stated in a press release.

The EBRD’s chief economist Erik Berglof has suggested to co-ordinate stabilisation efforts as well as to keep focus on key long-term growth challenges that face individual countries and the region.

“Stabilisation measures will need to be coordinated with other countries - both in western Europe and in other transition countries - taking account of the inter-linking ownership structures in the region’s financial system,” Mr Berglof stated.

He also pointed to the need of having a good physical infrastructure and business climate as well as of investing into education and appropriate skills among workforce.

“Such investment can reap clear rewards in terms of innovation and growth. Building human capabilities will be a major determinant of the rate of subsequent growth and its sustainability,” the EBRD’s economist concluded.

Source of information:
http://euobserver.com/9/27179