East Europe To Grow Slower Than Expected As Debt Contagion Spreads: EBRD

Countries in central and south-eastern Europe are expected grow less than previously expected as the negative impact of the Eurozone crisis on emerging Europe spreads further east, a report from the European Bank for Reconstruction and Development (EBRD) said Wednesday.

The bank said most of the economies across the transition region have been hit by the deepening debt crisis as lower global demand feeds through to lower commodity prices and generally lower risk appetite.

The revised outlook shows that spillovers from the turbulence in Europe are now having a negative impact on Russia also.

The EBRD expects the average growth in countries in the central and south-eastern Europe and the southern and eastern Mediterranean, where it has operations, to slow to sharply to 2.7 percent this year from last year's 4.6 percent, before bouncing back to 3.2 percent in 2013. The latest projection is notably lower than the previous forecasts of 3.1 percent for 2012 and 3.7 for 2013.

The Russian economy, which has also been hit by the contagion from troubles in the euro area, is now expected to grow by 3.1 percent this year, sharply weaker than the 4.2 percent expansion estimated earlier. The outlook for Russia's growth for 2013 has been slashed to 3.3 percent from 4.3 percent.

The bank expected the economies of Slovenia, Hungary and Croatia to contract this year, while Poland and the Slovak Republic are seen recording faster growth than estimated earlier. In Serbia, unfavorable domestic policies have also been adding to the ongoing risks to growth.

The report also highlighted the pressing challenges faced by some countries in the Middle East and North Africa, where the EBRD is planning to begin operations.