LONDON (Reuters) - The European Bank for Reconstruction and Development (EBRD) drastically slashed its economic outlook for the 37 countries in its region on Wednesday, forecasting a contraction of 3.5% this year as a result of a sharp hit to tourism, remittances and commodity prices from fallout from the coronavirus.
The EBRD, which tracks trends in 37 countries across Europe, Asia and Africa, gave its updated forecast in its latest semi-annual economic outlook. The expected contraction in gross domestic product in 2020 is a stark reversal from its prediction in November for a 2.9% expansion forecast.
“The EBRD region, just like most of the world, is facing the greatest challenge since World War 2,” EBRD chief economist Beata Javorcik told Reuters. “What started as a health crisis has become an economic crisis, and almost all economies in the region are expected to experience a substantial contraction this year.”
Predictions were based on a scenario that foresaw a gradual relaxation of containment measures and return to normality during the second half of the year, though it took into account an ongoing hit to demand, especially service sectors such as tourism and hospitality.
However, under a scenario that would require extended social distancing, economies across the region could suffer double-digit contractions, Javorcik added.
Some countries are seen suffering sharper losses in output than others. Albania is due to see one of the biggest hits with its economy predicted to shrink 9% in 2020 thanks to heavy reliance on producing textiles for the Italian fashion industry, remittances and tourism.
Russia’s economy is expected to shrink by 4.5% as a steep tumble in oil prices exacerbated data painting a bleak picture of the spread of the virus across the country.
Turkey was expected to see a somewhat milder 3.5% contraction due to its lockdown focussing on weekends, allowing a higher share of economic activity to continue.
Central European economies such as Hungary and Poland would see their economy’s contract in line with the region because they are emerging from lockdowns in lockstep with Western European economies such as Germany and Austria.
While the EBRD predicted a 4.8% in rebound in 2021, Javorcik said there were significant risks to that forecast due to uncertainties over the trajectory of the pandemic.
Graphic - EBRD forecast May 2020: here
Reporting by Karin Strohecker; Editing by Leslie Adler