Eastern Europe set for near-zero growth in 2009

By Stefan Wagstyl, east Europe Editor

Published: January 27 2009 17:21 | Last updated: January 27 2009 17:21


The economic clouds hanging over eastern Europe darkened today as the European Bank for Reconstruction and Development slashed its forecasts for the region and predicted near-zero growth for 2009.

The region’s 30 states, including the former communist bloc plus Turkey, will see gross domestic product growth of just 0.1 per cent, says the bank, making a dramatic cut in its previous forecast of 2.5 per cent, made just three months ago.

Six countries – Ukraine, Turkey, Hungary and the Baltic states – are plunging into recession, while another five, including Russia, are seeing growth rates slow to 1 per cent or lower.

Erik Berglof, the EBRD’s chief economist, said the sudden deterioration in outlook was caused by the continuing decline in the global economic environment, which was undermining demand for the region’s exports. The last quarter of 2008 had also come out much worse than expected, bringing down the estimated growth figure for the year for the region from 6.3 per cent to 4.8 per cent, with two countries – Hungary and Latvia – already in recession.

“The EBRD region is feeling the full impact of the global slowdown, mainly because of the region’s increased integration within the global economy,” said Mr Berglof.

“The ability of these countries to withstand such a major external shock over the longer term will depend largely on the speed of the recovery of the global economy, the combined efforts of individual governments and international financial institutions, including the EBRD, to safeguard financial systems in the region, and the support of foreign banks to their eastern subsidiaries.”

Mr Berglof noted that the international banks active in the region had so far fully supported their subsidiaries. But he expressed concern that west European governments putting together bank rescue packages for their own countries would discriminate against foreign subsidiaries. “This is a very big worry. We hear countries may be putting restraints on banks’ ability to finance activities abroad,” said Mr Berglof, naming the UK, Greece and Austria as states where such policies were under discussion. “At the moment, this issue is vague. We will have to see how it works out in practice.”