Euro Recession Drags Eastern Growth Lower, Development Ba

Eastern European economies will expand at half last year’s pace in 2012 because of worsening economic prospects in the neighboring euro area, the European Bank for Reconstruction and Development said.

While leaving its 2012 and 2013 growth estimate for the 29 eastern European and central Asian countries where it invests at 2.7 percent and 3.1 percent, the London-based lender cut its forecast for economies including Ukraine, Serbia, Poland, Croatia and Hungary from its July projections, according to an e-mailed report today. The bank raised estimates for Russia and Turkey, the two largest economies where it lends.

Central Europe, the Balkans and the Baltics are being hurt by the recession-hit euro area through trade and banking links. Exports have fallen “significantly” in most countries because of sluggish demand globally. Western European lenders have continued to cut down on capital and funding in the east, where they own about two-thirds of the banking industry.

“The euro-area crisis will continue to negatively impact growth in the transition region,” the EBRD said in the report. “Countries that are most integrated with the euro area will slow down somewhat more than previously predicted.”

Central Europe, the Baltic and Balkan countries have also seen “substantial” contraction in credit, with the exception of Poland and Bulgaria, the EBRD said.

Ukraine will expand 1 percent in 2012 and 2.5 percent next year, rather than 2.5 percent and 4 percent, the bank predicted. It cut Poland’s 2012 growth forecast to 2.5 percent from 2.9 percent and its 2013 projection to 2.2 percent from 2.4 percent.

Croatia’s economy will shrink 1.9 percent this year and grow 1.2 percent next, the bank said, rather than contracting 1.2 percent in 2012 and expanding 1.5 percent in 2013 as it predicted in July.

Egypt, Morocco, Jordan and Tunisia, where the bank is expanding, will grow 2.9 percent this year and 3.8 percent next, the bank said.

To contact the reporter on this story: Agnes Lovasz in Astana at alovasz@bloomberg.net

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net

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