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Eastern Europe Growth Outlook Worsens, Development Bank Says

May 10 (Bloomberg) -- Eastern Europe’s economic-growth prospects have worsened as the region’s largest economies, Russia and Poland, are slowing “significantly,” the European Bank for Reconstruction and Development said.

The 30 eastern European and central Asian countries where the EBRD invests will expand 2.1 percent this year, the London-based bank said today in an e-mailed statement, cutting its January forecast of 3 percent. The economies expanded 2.5 percent last year and will grow 3.1 percent in 2014, the EBRD predicted.

While the effects of Europe’s debt crisis are “abating,” the biggest downside risk for the east is the lack of policies to promote growth in the developed part of the continent as euro-area recession extends to a second year, the EBRD said. The London-based lender is calling on emerging European governments to overhaul services such as health care and pension systems to lay the foundations of long-term growth.

The slowdown “is a wakeup call across the region to re-energise structural reforms that have been on hold since the start of the crisis,” EBRD Chief Economist Erik Berglof said in the statement.

Eastern Europe has suffered as tighter capital rules forced western European lenders, which control three-quarters of the region’s banking industry, to cut funding and sell assets.

Even as the pullback by western lenders has moderated, “milder” delevaraging hasn’t yet improved the availability of credit in the region, the EBRD said.

Egypt, Morocco, Jordan and Tunisia, where the bank is beginning to lend as part of an expansion, will grow 3 percent this year, the bank said, lowering its January forecast by one percentage point. The countries will expand 4.1 percent in 2014, it forecasts. GDP grew 3 percent last year.

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

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

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