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By Sujata Rao
LONDON May 9 Europe's development bank slashed
its 2013 growth forecasts for emerging Europe and North Africa
on Friday by almost a full percentage point, saying a sharp
slowdown in Russia would drag down the regional economy.
The European Bank for Reconstruction and Development (EBRD)
said Russia's problems should galvanise the region to pull down
barriers to new businesses and investment.
The bank, originally set up to help Europe's ex-communist
states, cut its 2013 average growth forecast for all the
countries in which it now operates to 2.2 percent, down from
last year's 2.6 percent.
"Russia's slowdown is becoming a new source of weakness in
the region," the EBRD said at its annual summit in Istanbul.
The meeting's host country, Turkey, is sustaining an
economic boom as its manufacturers tap into export markets
But the EBRD said what had seemed like a temporary weakening
in Russia was in fact a trend slowdown, fuelled by a fall in
global prices for its commodity exports and by lower
post-election social spending.
This was a "wakeup call across the region to re-energise
structural reforms that have been on hold since the start of the
crisis," said EBRD Chief Economist Erik Berglof.
Seeing euro zone risks abating, the EBRD had predicted
growth of 3.1 percent this year in a January forecast for its
region, which now includes some North African countries.
But it said on Friday that any return of confidence was
being offset by a slowdown in two of the region's biggest
economies - Russia and Poland.
Russia's economy would grow just 1.8 percent in 2013, it
said - barely half the 3.5 percent it had forecast in January
and last year's 3.4 percent. Growth could pick up to 3.2 percent
next year, but there was "no quick turnaround in sight."
Poland, the only European Union country to escape recession
after the 2008 crisis, will grow 1.2 percent this year, slowing
from last year's 1.9 percent. The broader central European
region is expected to grow just 0.8 percent, the EBRD said,
trimming its January forecast of 1.2 percent.
Slovenia, Hungary and Croatia are seen stuck in recession,
with Slovenia's economy contracting 2.5 percent as it tries to
resolve its banks' bad debts without seeking international aid.
In the EBRD's new states, Jordan, Morocco, Tunisia and
Egypt, termed SEMED (southern and eastern Mediterranean),
Berglof said reducing subsidies would be key to cutting large
The growth slowdown is also gripping the countries which
joined the EBRD after the 2011 Arab Spring overthrow of
dictators in Egypt, Libya and Tunisia.
The bank predicts these economies to grow 3 percent in 2013
- on par with 2012 but a full percentage point below January
forecasts. It sees Egypt, mired in political turmoil, growing 2
percent - way below the level needed to get more people into
work - versus the 3.8 percent previously forecast.
Egypt "has exhausted almost all available policy space and
the lack of economic consensus has prevented the enacting of
much needed economic reforms," it said. Standard & Poor's cut
Egypt's credit rating to C, deep in junk territory, on Thursday.
But some commodity producers in the EBRD's sphere are
booming. Mining in Mongolia is forecast to generate 16 percent
growth this year, accelerating to 17 percent in 2014, and
Turkmenistan's gas will bring 10 percent growth.
(Reporting by Sujata Rao; Editing by Ruth Pitchford)