* Recovery slowed down by euro zone troubles
* Region's growth seen 3.4 pct in 2011 from 5.5 pct in 2011
* Region risks credit crunch
By Lidia Kelly
WASHINGTON, April 20 Continued crisis in the
euro zone hurts the modest recovery under way in emerging
European and Central Asian nations, the World Bank said on
Friday, warning of the risk of a credit crunch in the region due
to exposure to Western banks.
"The region is going to witness a slowing down of the
recovery, and this is obviously because a large part of the
region is very vulnerable to the negative growth prospects in
the euro zone," Philippe Le Houerou, the World Bank's vice
president for the European and Central Asian region, said during
The region, which includes 30 countries and stretches from
Poland and the Balkans through Ukraine and Russia to the
post-Soviet republics in Central Asia, has strong trade and
financial linkages with the euro zone, which helped it grow in
the 2000-2008 period.
Economic expansion in the region is to ease to 3.4 percent
this year, from 5.5 percent in 2011 - one of the slowest
expansions of any developing region, Le Houerou said.
"There is a pattern that's emerged, and again the pattern is
pretty consistent with the overall macro story, which is the
countries that will see the sharpest slowdown of the recovery
would be again the Eastern Europeans and the Balkans," he said.
Turkey is likely to suffer the biggest slowdown in gross
domestic product growth to 2.9 percent this year from 8 percent
in 2011. Ukraine's GDP growth is expected to ease to 2.5 percent
from 5.2 percent last year.
The region also faces risks of a credit crunch, Le Houerou
said, as a result of the financial integration of the region
with banks in some of the troubled euro zone economies.
"Now we have a legacy where the Western banks are now facing
pressures at home, facing pressure to reducing the lending at
home and in the emerging markets and there is a risk of credit
crunch in the ECA region," he said.
Greek and Italian banks own about 60 percent of Bulgaria's
total banking system assets and more than a third of Albania's,
according to the World Bank. Nearly half of Croatia's banking
assets belong to Italian banks.
"When Western European banks come under pressure then the
credit crunch on the region may become a reality," Le Houerou
He also urged governments of the region to take fiscal and
financial steps to ensure growth.
But because many state coffers in the region have been
depleted in recent years, he said, there has been a big increase
in fiscal deficit and correspondingly, a spike in the public
"Now, the key issue is - there is a slowing down, there is a
difficult external context; there is now not much room for
further stimulus through public spending," he said.
(Editing by Leslie Adler)