The former Soviet bloc economy will contract by a sharper-than-expected 6.3 percent in 2009 before returning to growth next year, the European Bank for Reconstruction and Development forecast Thursday. "The economies of central and eastern Europe are expected to contract by an average of 6.3 percent in 2009 following steep output declines in the first half of the year," the London-based EBRD said in a statement.
The predicted contraction in gross domestic product (GDP) is sharper than the EBRD's earlier forecast for minus 5.2 percent across the countries in which the bank invests, which include Russia and Uzbekistan. "Signs of positive growth in the third quarter of 2009 suggest that the recession is now bottoming out in many countries of the EBRD region. However, any upturn in 2010 is likely to be fragile and patchy," it said.
"There are likely to be significant cross-country differences in output growth in 2010, masked by an average growth rate for the region of about 2.5 percent." EBRD chief economist Erik Berglof noted "it is also clear that the social costs of the global economic crisis are only likely to be felt in earnest next year, when corporate bankruptcies and unemployment will continue to rise. "Growth over the medium term in the EBRD region is also likely to be below the trend experienced over the last decade."
Russia's economy was expected to shrink 8.5 percent in 2009 followed by a return to growth of about 3.0 percent in 2010, the EBRD said. "Commodity rich countries including Azerbaijan, Mongolia, Turkmenistan, and Uzbekistan, whose financial systems were smaller and less affected by the (global financial) crisis" were expected to grow by five or more percent next year. Commodity prices are rallying, with gold striking a record high above 1,070 dollars an ounce and oil reaching a one-year peak close to 76 dollars this week.
Earlier this month, the EBRD warned that eastern Europe risked tipping back into financial turmoil, warning in a joint statement with the World Bank and European Investment Bank that there were "increasing risks of a major credit crunch in the region." EBRD President Thomas Mirow last month said it would be a "grave mistake" to think the financial crisis was over despite talk of recovery.
Mirow heads the EBRD, a bank formed in 1991 to help former communist nations adopt market economies after the collapse of the Soviet Union. It currently invests in 30 countries and because of the financial crisis, it recently increased its planned investment in the region this year by 52 percent to eight billion euros (12 billion dollars). The financial crisis that erupted in late 2007 has ravaged economies in central and eastern Europe largely because many of the countries relied heavily on foreign capital or high commodity prices for economic development.
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