Eastern Europe’s Economy Faces Slow Improvement, Moody’s Says

Economic growth in eastern Europe is poised to quicken this year as risks from the continent’s debt crisis ease and austerity measures are scaled back, according to Moody’s Investors Service.

Gross domestic product in the mostly post-communist region may expand 1.9 percent compared with an estimated 0.7 percent in 2012, the least in three years, the ratings company said today in an e-mailed report. While growth will pick up in nine of the region’s 15 economies, it will remain “subdued” compared with the 5.6 percent average posted in 2004-2008.

“The more favorable economic-growth outlook for the region will be supportive of fiscal consolidation programs, which are set to slow after substantial progress in 2010-12,” Moody’s said. “We expect a notable deceleration of economic activity in only two countries in the region, Latvia and Slovakia, while the majority will see either some acceleration in output growth or experience a similar performance to 2012.”

Eastern European economies, whose expansion was boosted by foreign credit inflows before the 2008 collapse of Lehman Brothers Holdings Inc., are suffering through trade and banking links to the recession-hit euro area. Central banks from Budapest to Warsaw have cut borrowing costs to soften the economic slowdown, while governments have trimmed spending.

Even amid the easing austerity, the region’s average budget deficit under EU methodology will shrink to 2.7 percent of GDP this year, falling below the 27-member bloc’s 3 percent threshold for the first time since 2007, Moody’s said. Still, the average ratio of debt to GDP will widen to 46.9 percent from 45.1 percent before stabilizing in 2014, it said.

Year-end inflation will slow to 3.1 percent this year from 3.7 percent in 2012 as energy prices stabilize in most countries, Moody’s said.

Slovenia will probably be the only economy to contract this year as it grapples with a banking crisis, according to the ratings company, which predicts that Bosnia-Herzegovina, Croatia, the Czech Republic, and Hungary will exit recessions.

To contact the reporter on this story: Ott Ummelas in Tallinn at oummelas@bloomberg.net

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

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