Euro crisis spills over to East and South, says EBRD
By Lénaïc Vaudin d’Imécourt | Wednesday 25 July 2012
Economic growth in the Eastern European countries in 2012 is set to be half of that registered a year earlier because of the knock-on effects of the euro-sovereign debt crisis, the European Bank for Reconstruction and Development (EBRD) has said.
According to a report published on 25 July by the London-based bank, the economies of the 29 Central and Eastern European and Central Asian countries where the EBRD invests will only grow by 2.7% in 2012, down from 4.6% the previous year, before “modestly” picking up to 3.2% in 2013. As early as May, the bank was forecasting a 2012 growth of 3.1% and 3.7% in 2013, but it lowered its prediction because of a downgrade of projections for growth in Russia, it explained.
While Russia and most Central Asian economies continued their recovery from the global crisis through 2011, growth in most countries has now started to slow down “as a result of the eurozone crisis and the associated drop in commodity prices, combined with domestic and regional factors,” the report says.
Russia was hit by a 1.1 percentage point slash in the EBRD’s July economic outlook, compared with its previous forecast in May. The report explains that since early this year, the crisis has negatively impacted oil and other commodity prices as well as investor confidence, which has in turn led to lower growth in Central Asia. “Assuming no major pickup in oil prices or global demand, GDP growth is therefore expected to slow down to 3.1% in 2012 and 3.3% in 2013.”
SOUTHERN AND EASTERN MEDITERRANEAN
Egypt, Jordan, Morocco and Tunisia are expected to grow by 2.1% in 2012 – just 0.1% down from the May forecast – and by 3.7% in 2013. The countries of the region “continue to face dire macroeconomic challenges,” the bank noted, as the economies of the four countries “have taken a hit from declining tourism, FDI and trade, and investors have adopted a wait-and-see approach”. A drop in tourism and outflow of capitals has also weakened current account balances.
Because of its “close links to the eurozone, which accounts for the majority of its exports, tourist and remittances,” the EBRD decided to slash its growth forecasts for Morocco. The country’s economy is now expected to grow by 2.4% in 2012, down from 3.5% forecast in May.
EBRD estimates are based on a scenario of continued slow and uneven progress towards containment of the eurozone crisis. But should the eurozone not be able to “muddle through” the crisis leading to the crisis spreading to larger single currency area members, growth in Central Europe, the Baltic states, Central Asia and South-East Europe would be even more modest. However, “the probability of this downside scenario has reduced somewhat following the recent EU summit decisions on ‘more Europe’ with the prospect of a banking union in the future,” the EBRD reports.