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East Europe Slowdown Spreads to Russia and Poland, Capital Says

Eastern Europe’s economic growth probably slowed last quarter and will slump further through year-end as the euro region’s debt crisis remains unresolved and governments cut spending, Capital Economics said.

Growth in Europe’s east probably averaged between 1.5 percent and 2 percent in the third quarter after 2.5 percent in the April-June and 4.8 percent in 2011, economists at Capital led by Neil Shearing in London wrote in e-mailed note today.

The euro region is the biggest export destination and main source of investment and bank financing for emerging Europe. Growth has slowed even in Russia and Poland, which earlier had expanded more quickly than the rest of the region, as the euro area’s economic slump deepened and foreign lenders cut support to their units to repair balance sheets.

“Worryingly, the slowdown appears to have spread to what were the region’s strongest economies, with growth in Russia and Poland slowing sharply,” the economists wrote. “The broader picture is pretty gloomy. Looking ahead, there doesn’t appear to be any prospect of a quick rebound.”

The Russian economy is going through “a fairly sharp slowdown,” with both industry and consumers being hit by the central bank’s decision to raise interest rates last month after inflation quickened, the economists wrote. The economy probably grew 2 percent in the third quarter, its slowest pace in more than two years, Capital estimated.

The Polish economy probably expanded 1.8 percent last quarter, the slowest pace since 2009, according to Capital. The trend in industrial output has continued downward and the euro crisis will continue to damp exports. Falling inflation-adjusted wages, record low household savings and a “sharp slowdown” in credit growth point to further weakening in consumer spending, the economists wrote.

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