Ukraine-Russia Standoff May Halt East Europe Growth, EBRD Says

The European Bank for Reconstruction and Development slashed its economic forecast for eastern Europe and central Asia by more than half and warned the conflict between Russia and Ukraine may kill growth.

Gross domestic product in the 30 economies from Russia to Poland will grow at an average 1.3 percent this year, compared with the London-based lender’s January prediction of 2.8 percent, it said in a statement during its annual shareholders’ meeting in Warsaw. The countries will expand 1.9 percent next year, it said.

The standoff has “significantly increased geopolitical and economic uncertainty, with direct negative effects on the economies of Ukraine and Russia and potentially wider implications for the region as a whole,” the EBRD said. With the prospect of increased sanctions, “Russia would slip into recession and average growth in the region would grind to a halt in 2014-15.”

Eastern Europe’s recovery from spillovers of the euro region’s debt crisis is at jeopardy as the Russian economy, the region’s largest, may slide into a recession as the European Union and the U.S. expand their list of sanctions for President Vladimir Putin’s actions in neighboring Ukraine. The retaliatory measures have intensified capital flight from Russia.

The deterioration “dashed hopes” that the decline since 2011 in the region’s growth rate would be reversed this year, the bank said. Growth has slowed from 2.3 percent last year.

Russia’s economy will stagnate this year rather than expanding 2.5 percent as the bank predicted in January. Ukraine’s GDP will contract 7 percent this year, compared with a January forecast for 1.5 percent growth, according to the report. The economy will stagnate next year, the bank said.

The regional forecast excludes Egypt, Jordan, Tunisia and Morocco, which are also recipients of EBRD funding.

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

To contact the editors responsible for this story: Balazs Penz at bpenz@bloomberg.net James M. Gomez, Pawel Kozlowski

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